VAT payments on account: large VAT payers make interim payments before the quarterly return

Businesses with very large VAT liabilities can be required to make VAT payments on account during each quarter rather than paying the entire amount with the VAT Return. That turns VAT into a more frequent treasury obligation and removes the normal seven-day electronic payment extension for the interim payments.

The scheme applies where annual VAT liability exceeds £2.3 million

HMRC's current guidance says VAT-registered businesses with annual VAT liability above £2.3 million are generally required to make payments on account. The calculation and entry into the scheme are handled by HMRC using the relevant liability history.

Groups should look at the liability of the VAT group as a whole. HMRC's July 2026 VAT-group notice confirms that group liability determines whether the payment-on-account scheme applies.

Two interim payments are made during each VAT quarter

The business makes interim payments at the end of the second and third months of each quarterly VAT accounting period. HMRC sets the amounts based on the scheme calculation.

These payments are advances toward the quarter's final liability. Treasury should schedule them as fixed monthly tax events rather than waiting for the VAT return to be prepared.

The normal seven-day electronic extension does not apply

HMRC specifically states that the seven-day extension normally available for certain electronic VAT payments does not apply to VAT payments on account. The interim amount must clear HMRC's bank account by the stated due date.

That makes Bacs timing especially important. If the due date is close, use a faster method that still meets HMRC rules and the company's bank limits.

The quarterly return creates a balancing payment

After the VAT Return is prepared, the business pays the net amount shown on the return less the payments on account already made for that quarter. The balancing payment is due with the return under the scheme timetable.

Do not reduce the VAT Return figures themselves to account for interim cash already sent. HMRC says the return is filed normally and the payments are deducted from the amount payable, not from the tax calculation.

Repayment returns can result in the interim amounts being repaid

If the quarterly return results in a repayment position, HMRC says it will repay the payments on account made in the quarter as part of the settlement process. This can create large tax receivables for businesses with volatile trading.

Forecast refunds conservatively until HMRC has processed the return. Large VAT repayments can be subject to checks and should not be treated as guaranteed bank cash on filing day.

Late interim payments can trigger immediate recovery and interest

HMRC says late payments on account are subject to late-payment interest and can trigger debt recovery. Persistent failure can also lead HMRC to consider moving the business from quarterly to monthly returns.

Reconcile every interim and balancing payment to the VAT quarter. Large taxpayers should maintain one VAT treasury schedule showing return dates, interim due dates, amounts paid and the final quarter balance.

Worked example: if HMRC sets each interim payment at £250,000, the business can send £250,000 at the end of month two and £250,000 at the end of month three. If the final quarterly return shows £800,000 due, the balancing amount is £300,000 after the two interim payments. Finance should be able to reproduce that bridge before release.

Because the seven-day electronic extension does not apply, put the interim due dates into the treasury system as hard deadlines rather than deriving them from the normal VAT-return calendar. A team used to paying standard VAT one week later can easily create interest through habit.

Review payment-on-account amounts when liability changes materially. HMRC provides processes for variation in appropriate circumstances. A rapidly shrinking business should not automatically keep funding excessive interim amounts if the scheme permits adjustment.

Large taxpayers should compare actual quarterly liability with the interim-payment basis each quarter. If actual VAT is trending materially above the payments on account, reserve the expected balancing amount early. If it is materially below, assess whether HMRC's adjustment process is appropriate rather than allowing unnecessary cash to sit with the tax authority.

For groups with central treasury, place VAT payments on account on the same priority list as payroll and debt service. Missing one interim date can create interest even though the quarterly return itself is still weeks away. The absence of a filing event should never make the cash deadline invisible.

Maintain a separate payment reference line for every interim and balancing transfer, even when all use the same VAT registration number. That lets finance prove which bank debit related to which quarter and prevents a later HMRC allocation query from becoming a search through several identical large payments.