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Smoothing out your VAT cycle

Are you experiencing the January cashflow challenge of having had a slow December?

Paul Surtees Oct 31, 2019

Paying your VAT bill may not be at the top of your strategic to-do list when it comes to planning and long-term financial goals. But with Christmas now behind us, receiving timely VAT advice can be a real life-saver if you're a cash-poor business to business (B2B).


Slow Christmas trading and the pressure of tax bills

December trading makes for a slow month for many businesses – particularly those that don’t have the seasonal peak of consumer-driven Christmas sales to offset this December downturn in sales, income and quarterly profits.  

Those that experienced this seasonal dip will have less revenue coming in but will, typically, have the same outgoings. So, there’s less cash in the pot to cover salaries, rent and other operational overheads incurred by the business, resulting in a tough few months ahead. 

This slowdown in revenue can have serious repercussions on the businesses ability to pay upcoming corporation tax (CT) and value-added tax (VAT) bills.


CT and VAT cycle


The chart below illustrates the regular annual CT and quarterly VAT cycles across the year for the majority of SMEs paying on a quarterly basis. The tax year-ends are mapped across the vertical axis and the months when CT/VAT payments are due on the horizontal.


It may be useful to consider which months you will fall into. 

For example, for a business with an April year-end – that does not benefit from Christmas trade – the December dip in liquid cash can create a difficult triple-whammy effect on their finances:

  1. Slow trading over Christmas makes it very hard to rebuild cash reserves
  2. Poor revenue makes for a difficult January corporation tax (CT) bill
  3. This is immediately followed by the cash hit of a VAT bill in March

This seasonal impact also carries across for businesses that have a March financial year end and tax bills due in December and February – making for a tricky quarterly period for any businesses with March or April year-ends. 


Find out more about VAT funding with Capitalise.


Download the CT and VAT cycle chart.

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