Why VAT causes surprises
If you are VAT registered, the VAT you charge is not your income. It is money you hold until you pay it to HMRC, less the VAT you have paid on your own purchases. It sits in your bank account looking like cash you can use, and then a large payment leaves in one go.
When it is due
Most businesses submit a VAT return every three months. The deadline to submit the return is usually one calendar month and seven days after the end of the accounting period, and that is also the deadline for payment to reach HMRC. Some schemes have different deadlines, for example the Annual Accounting Scheme. Your VAT online account shows your own dates.
Allow time for the payment to clear. Payment must reach HMRC by the deadline, even if it falls on a weekend or bank holiday.
Putting it in the forecast
- Find the date each VAT payment is due, for the whole forecast period.
- Estimate the amount: VAT charged on sales in the period, less VAT reclaimable on purchases. Use your accounting software's figure if it has one.
- Enter it as a single payment in the week it is due, not spread across the quarter.
- Keep an eye on the estimate as the quarter progresses, because it moves with every invoice you raise and bill you pay.
If your invoices are entered gross (including VAT), check whether your forecast treats them as cash in and the VAT payment as cash out. Both need to be there for the forecast to balance.
A simple habit
Some businesses keep VAT in a separate savings account and move the VAT element across as each invoice is paid. It makes the payment a non-event, and it stops the VAT balance looking like spendable cash.
General information only. VAT rules depend on your circumstances and scheme. Check with your accountant or HMRC.