Spreading your VAT bill

A VAT loan lets you pay HMRC in full and on time, then repay the lender in fixed monthly installments over 3 months. For businesses where a quarterly VAT bill lands at the wrong moment, it turns one large payment into a predictable monthly cost.

Quarterly VAT is due one month and seven days after the end of each VAT period. The amount is known in advance. The problem is that the cash to pay it often is not sitting in the account when the date arrives.

Why quarterly VAT strains cash flow

• VAT is charged before you are paid. Under standard VAT accounting, you owe VAT on invoices you have raised, not invoices that have been settled. If customers pay on 60 or 90-day terms, part of the VAT you owe HMRC is still sitting in your debtor book.
• Bills cluster. A VAT quarter can fall in the same month as payroll, quarterly rent, corporation tax or a seasonal stock build. Each is manageable alone. Together they can drain working capital in a single week.
• Growth makes it worse. More sales means a larger VAT bill, usually before the extra cash has come in. Recruitment, construction and manufacturing businesses feel this most when they win new contracts.
• Paying it from reserves has a cost too. Clearing a large bill from working capital leaves less headroom for suppliers, wages and the next opportunity.
• Paying late is expensive. HMRC charges no late payment penalty for the first 15 days. After that it charges 3% of the unpaid VAT, a further 3% after 30 days, then a daily penalty equivalent to 10% a year. Late payment interest at the Bank of England base rate plus 4% runs from the day after the due date. Late payment also affects your record with HMRC.

How a VAT loan works

1. You apply before the VAT payment is due, with your VAT return figure and recent accounts or bank statements.
2. The lender funds the bill paying HMRC.
3. You repay the lender in fixed monthly installments, typically over 3 months.

Many businesses choose a three-month term so the loan is cleared before the next quarter's bill arrives. Facilities through SBF typically run up to £500k and usually take 24 to 72 hours to set up. Lenders commonly ask for a personal guarantee from the directors. The same structure can be used for a corporation tax bill.

Benefits of spreading the payment

• HMRC is paid in full and on time, so no late payment penalties or interest build up and your compliance record stays clean.
• Working capital stays in the business for wages, suppliers and stock.
• Fixed monthly repayments are easier to plan around than one large quarterly outflow.
• Fast to arrange. Decisions are often made within days, which matters when the deadline is close.
• Repeatable. Businesses with seasonal or lumpy cash flow can use it for the quarters that need it and pay direct when they do not.

What to weigh up first

• It is borrowing, and it has a cost. Compare the total repayable against what late payment would cost you, and against paying from reserves.
• HMRC Time to Pay is an alternative. If you contact HMRC before the deadline, a payment plan can stop penalties applying, though interest still runs. HMRC will expect you to show you cannot pay in full, and approval is not guaranteed.
• A VAT loan fixes timing, not an underlying shortfall. If the VAT bill is a problem every quarter, the cause is usually cash tied up in unpaid invoices. Invoice finance may be the better fix.
• Not every application is approved. Lenders look at trading history, profitability and existing borrowing.

How SBF helps

We compare tax loans across our panel of lenders and present the best two or three options side by side, usually within 24 hours. There are no upfront fees, and an enquiry does not trigger a credit search. If a VAT loan is not the right answer, we will say so and show you what is.

Apply early: the closer you are to the deadline, the fewer options you have.

Check eligibility: call 0330 0438 011 (Mon to Fri, 8:30am to 6pm) or email [email protected].

Secure Business Finance Ltd is a credit broker, not a lender, and may receive commission for introductions. All finance is subject to status and lender criteria.