VAT and tax in your cash flow forecast: don't get caught
How to work VAT, PAYE and corporation tax into your cash flow forecast so the quarter never leaves your small business short.
Here is a quiet killer of small businesses that look healthy on paper. One Monday you open the current account, see a comfortable figure and plan the next month on it. Three weeks later the VAT return goes in, HMRC takes its slice, PAYE and NICs leave the account the week after, and the cushion that felt safe is gone.
Most cash squeezes at a small business start here. VAT you collected from customers has never been your money. PAYE deducted from staff wages has never been your money. Corporation tax on last year’s profit has to come out this year. If your cash flow forecast does not show those payments on the exact dates they will leave the bank, the forecast is lying to you.
This article is about putting that right. How to size the VAT bill before it lands, how to reserve the money every month so the quarter is a non-event, and the dates that matter for a UK small business, with notes for Ireland and other countries at the end.
The classic mistake, counting VAT received as your money
You invoice a customer for £10,000 plus £2,000 VAT. The bank shows £12,000. Your forecast shows £12,000. Three months later HMRC asks for the difference between the VAT you charged and the VAT you paid your suppliers, and that line in the bank dives.
Output VAT is a liability with a deadline. You collect it on behalf of HMRC. The more you grow, the more VAT builds up, and the harder the hit if nothing is set aside.
Rule of thumb:
- VAT you charge customers = liability, not spendable cash.
- VAT you pay suppliers = money you will reclaim against the above.
- Net VAT = the difference. That is what leaves your account every quarter.
A decent forecast shows net VAT as a future payment from the day you issue the invoice, not the day you remember.
Which taxes belong in a UK small business forecast
Dates vary with your VAT scheme, PAYE scheme and company year-end. Confirm the specifics with your accountant and with the GOV.UK pages for your business, because that is the only source that never goes stale. The table below covers a typical limited company with a standard VAT quarter and a December year-end.
| Tax | What it covers | Frequency | Due |
|---|---|---|---|
| VAT (standard) | Output VAT less input VAT | Quarterly | 1 month and 7 days after the quarter end |
| VAT (Annual Accounting) | Advance payments plus balancing payment | Monthly or quarterly instalments | End of each instalment month |
| PAYE and NICs | Income tax and NICs deducted from wages | Monthly (quarterly if under £1,500/month) | 22nd of the following month if paying electronically |
| Corporation tax (small company) | Tax on last year’s profit | Once | 9 months and 1 day after the accounting period end |
| Corporation tax (large) | Quarterly instalments on current year’s estimate | Quarterly | 6 months 13 days from start, then every three months |
If your VAT exceeds £2.3 million in any twelve-month period, HMRC puts you on payments on account, with the last working day of months 2 and 3 of each quarter. On the Annual Accounting Scheme you pay in advance all year and reconcile with one final payment two months after year-end. For PAYE paid quarterly (small employers), the deadline is the 22nd of the month after the quarter ends.
For your diary, the official source: HMRC VAT return deadlines on GOV.UK.
For an Irish company the pattern is close but not identical. VAT is usually bi-monthly, by the 19th of the following month, or the 23rd if you file and pay through ROS. PAYE Modernisation runs through Revenue payroll filings. Corporation tax is paid in two instalments. Confirm the exact dates with your Irish accountant and with Revenue. The discipline is the same.
How to feed it into your spreadsheet or treasury tool
Two moves. Done together, they end the quarterly panic.
1. Reserve the net VAT every month, even when nothing is due yet.
At month-end, calculate output VAT less input VAT and move it into a separate line of the forecast called “VAT held for the quarter”. It is not an expense. It is cash marked as not yours. If you can, keep it in a different bank sub-account. When the deadline comes, you simply transfer and get on with your day.
2. Schedule the estimated payment on the real date.
In the “tax” row of your weekly or monthly forecast, book a cell for every return in the year with your best estimate. Do not wait for the return to be filed. For VAT, a starting estimate is your average VAT rate on net sales. For PAYE, your payroll software gives you the number by the 20th of each month. For corporation tax, your accountant can give you a figure in January that will not move much.
If you keep your books in Odoo, the raw data is there: sales invoices with VAT codes, purchase invoices, reconciled bank statements. What Odoo does not do is show tomorrow’s VAT bill on your bank timeline. Odoo Community has no forward cash view. The cash flow statement in Odoo Enterprise looks backwards. The tax row of your forecast is something you build on top, usually in a spreadsheet or in a treasury tool.
Kashbi removes the manual bit. It adds the estimated VAT and withholdings to the forecast on the actual due date, pulled from your Odoo. If you run several companies, it does it company by company.
A worked quarter with the numbers
Fictional small business, Ridgeway Electrical Ltd, 14 people, VAT quarter ending 31 March, December year-end.
January, February, March:
- Sales invoiced (net): £180,000. Output VAT at 20%: £36,000.
- Costs with VAT (net): £110,000. Input VAT at 20%: £22,000.
- Net VAT for the quarter: £14,000, due by 7 May.
- Monthly PAYE and NICs: around £24,000 for January, £25,000 for February, £26,000 for March.
- Corporation tax reserve: £2,100 moved aside every month (£25,200 expected for the year).
What actually leaves the bank in the first weeks of May:
- VAT: £14,000 by 7 May
- PAYE and NICs for April: around £24,000 by 22 May
- £2,100 shifted into the corporation tax reserve
If each month you have been moving about £4,700 aside for VAT (£14,000 divided by three), 7 May stops being an event. If you have not, early May is a bad week, because PAYE lands two weeks later and the same account is doing all the work.
Do the exercise once at the start of the year with your accountant, split by month, then update at every month-end.
Making it fit the 13-week forecast
In a weekly forecast, each tax deadline is a dated row. If your 13-week cash flow forecast does not show HMRC on its real dates, it is incomplete. In practice I like two rows: “tax reserved this month” (what you move aside) and “tax paid to HMRC” (what actually leaves). The first shows the effort. The second shows the impact.
When you build a cash flow forecast from scratch, tax is the second row to lock in, right after payroll. Everything else can slip by a week. These cannot.
Watch the indicators that warn you early
Two cash KPIs for business owners earn their keep here. The minimum projected bank balance over the next 90 days. And the ratio between operating cash today and the next tax hit. If at the end of February your operating cash is lower than the 7 May VAT bill estimate, do not wait for May. Call the accountant, chase overdue invoices, ask HMRC for a Time to Pay arrangement before the deadline, delay a non-urgent purchase. Time to Pay is a safety net, not a plan.
Frequently asked questions
Can I know the VAT bill before the return is filed?
Yes, by month-end. Output VAT is set the day you raise an invoice. Input VAT is set the day you receive the supplier invoice. If your bookkeeping is current, each month-end produces a reliable estimate that your accountant can tune.
What if a customer pays late and I cannot cover the VAT?
Standard VAT is accounted for on the invoice date, not the payment date, unless you are on the Cash Accounting Scheme (available below £1.35 million turnover). If you cannot pay, phone HMRC and request Time to Pay before the deadline, not after. Late payment penalties start once the VAT is more than 15 days overdue and grow from there.
How do I budget corporation tax before I know the profit?
Ask your accountant for a monthly figure based on current trading, revised each quarter. Even a rough number set aside every month is better than nothing. For small companies the whole bill is due in a single payment nine months and one day after year-end, which is the single biggest payment many directors forget.
Does the same sheet work for a group of companies?
Yes, if you keep one tab per company and consolidate afterwards. Each entity has its own HMRC references, its own VAT scheme and its own PAYE scheme. Intra-group invoices create output VAT on one side and input VAT on the other, which cancel out across the group, but in cash each company still pays from its own bank.