Businesses registered for Value Added Tax that owe more than £2.3 million in annual VAT must enter HMRC’s VAT payments on account regime. Under this account arrangement, businesses make advance payments towards their annual VAT bill instead of waiting until the end of each VAT quarter. This helps HMRC manage risk for businesses with a high annual VAT liability.

Below, we break down how the account regime works, how the payment amount is calculated, and when you may be able to switch to pay actual monthly liabilities instead.

What Are VAT Payments on Account?

If your total VAT liability for the previous year exceeds the £2.3 million threshold, HMRC requires you to make two payments on account during each VAT quarter, plus a balancing payment.

These monthly payments must reach HMRC’s bank account in cleared funds by the last working day of the second and third months of each quarter. Unlike other VAT‑registered businesses, companies in the account regime do not get the extra seven calendar days for paying electronically.

Late payments trigger late payment interest, penalties and can disrupt your accounting period or account cycle. So making payments on time is crucial to avoid penalties.

How Your Payment Amount Is Calculated

HMRC calculates your payments using your previous year’s annual VAT liability. The standard approach is simple:

• You pay 1/24th of your annual VAT bill in each of the second and third months of your VAT quarter.
• You then submit your VAT return at quarter‑end and make a balancing payment (or receive a refund if your VAT liability falls below the payments you’ve already made).

If your VAT liability exceeds expectations, your next payment may rise—although it cannot exceed your prior year’s total amount.

When You Can Adjust Your Payments

If your actual monthly liabilities fluctuate significantly (by more than 20%) you may be able to request an adjustment. Businesses that opt for this must demonstrate that their VAT liability has changed for valid, commercial reasons such as:

• Falling turnover
• Seasonal services supplied
• Changes to group members within a VAT group
• Shifts in excise warehouses, moving goods or trading patterns

HMRC must approve these adjustments before any changes can be applied.

Switching to Paying Actual Monthly Liabilities

Instead of paying fixed instalments, some businesses can request to pay actual monthly liabilities. This means submitting monthly VAT returns and making monthly payments based on what you actually owe. This approach can support cash flow where the VAT liability varies significantly month to month.

However, many businesses prefer to send VAT returns quarterly, especially those with stable trading patterns or predictable liabilities.

Key Deadlines and Practicalities

You must ensure payments clear HMRC’s bank account on time, even when the deadline falls on a bank holiday. If the due date moves because of a non‑working day, use the next working day rules to stay compliant.

Payments must be made electronically, including:

• Faster Payments
• CHAPS
• BACS (allow extra time so funds clear)

Missing the due date can lead to interest, penalties and complications in your first quarter under the regime.

How HLWA Can Support Your Business

As a Bristol‑based practice working with businesses across South Wales and the South East, HLWA helps companies:

• Calculate VAT payments accurately
• Review whether the account arrangement is appropriate
• Monitor when your accounting period or turnover might push you into the regime
• Manage the cost and cash‑flow impact of monthly payments
• Ensure payments reach HMRC on time
• Navigate repayment claims and VAT refund situations

Whether you’re operating a hospitality venue, managing a VAT group, or running a multi‑site business, we help you stay compliant and avoid penalties.