Why VAT payment on account businesses should check their HMRC account this summer
Businesses in the VAT payments on account regime should review the VAT section of their HMRC Business Tax Account this summer. HMRC starts a new annual instalment cycle in April, May or June, depending on the business’s VAT return stagger, and updated payment schedules can be viewed through the VAT online account.
The regime applies where a business submits quarterly VAT returns and owes more than £2.3 million in VAT in any period of 12 months or less. HMRC normally calculates each interim payment by dividing the relevant annual VAT liability by 24. Two payments are made during each VAT quarter, followed by a balancing payment when the return is submitted.
Why the summer review matters
The annual cycle is based on a reference year linked to the business’s VAT stagger. By summer, the new cycle has begun for all 3 standard staggers.
| VAT return stagger | Reference year ends | New annual cycle |
|---|---|---|
| Stagger 1 | 30 September | April to March |
| Stagger 2 | 31 October | May to April |
| Stagger 3 | 30 November | June to May |
HMRC also reviews the previous 12 months of VAT liability every quarter. If the liability rises by 20% or more, HMRC can increase the instalments during the annual cycle. Businesses should therefore check the latest schedule instead of continuing to pay an old standing-order amount.
What to check online
Confirm the instalment amounts, payment deadlines and transactions already recorded in the account. Payments on account are due on the last working day of the second and third months of each VAT quarter.
Cleared funds must reach HMRC by the deadline. The usual 7-day extension available for some electronic VAT payments does not apply to payments on account, so businesses should allow enough time for the chosen payment method to process.
Need Expert Accounting Advice?
If you are unsure about tax, bookkeeping, payroll, property accounts or business finances, speak to the team at FHP Accounting for clear, practical guidance.
Direct Debit is not currently available for VAT payments on account or their balancing payments. The government has consulted on wider mandatory Direct Debit use, but no change has taken effect. Available payment methods include online banking, Faster Payments, CHAPS, Bacs, debit or corporate credit cards and standing orders.
Late instalments are subject to HMRC late payment interest from the day after the deadline. Late payment penalties may also apply where an amount remains unpaid after the balancing-payment due date.
When VAT liability changes
HMRC may reduce instalments if the business’s total VAT liability falls below 80% of the amount used for the current calculation. However, the business must request the reduction and continue paying the existing instalments until HMRC confirms the revised figure.
If VAT liability falls below £2.3 million in the reference year, HMRC will normally remove the business from the regime 6 months later, provided the threshold is not exceeded again. A business may ask to leave earlier where its VAT liability for a completed year ending after the reference year is below £1.8 million.
Businesses with seasonal or uneven turnover can apply to pay their actual monthly VAT liability instead of fixed instalments. Once selected, this method must normally be followed for at least 1 year.
Keeping the figures reliable
Accurate monthly bookkeeping makes the balancing payment easier to forecast. Keeping VAT records inspection-ready and reconciling VAT in Xero or other accounting software can reduce the risk of missed liabilities and unexpected payments.
Large property groups may also benefit from specialist VAT support. Our team works with managing agents on company VAT, property transactions and finance processes.
You can review the full requirements on the GOV.UK VAT payments on account page.
Frequently asked questions
What is the VAT payments on account threshold?
The regime applies to quarterly VAT filers owing more than £2.3 million in VAT in any period of 12 months or less.
Can instalments be reduced?
Yes, but HMRC must approve the change before the business alters its scheduled payments.
Can actual monthly VAT be paid instead?
Yes. This option may suit businesses with seasonal or uneven VAT liabilities.
Talk to us before your next VAT deadline
We are accountants in Nottingham supporting growing businesses, landlords and residential management companies. Whether you need an outsourced finance department or advice while scaling up, get in touch to keep your VAT payments on track.
I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.
Need Expert Accounting Advice?
If you are unsure about tax, bookkeeping, payroll, property accounts or business finances, speak to the team at FHP Accounting for clear, practical guidance.
