VAT loans
VAT Loans for UK Businesses
A VAT loan is business finance used to pay a VAT bill to HMRC, then repaid to the lender over an agreed period. It’s one way to deal with a large VAT payment without taking all of it out of your cash at once.
Wize Finance can help your business see whether finance could help cover a VAT payment, and which types may suit, before you approach a lender.
It isn’t right for every business. If paying would be difficult at all, HMRC’s own payment options are explained further down: Your options when a VAT bill is due ↓
Tell us the size of your VAT bill and when it's due. The team reviews your enquiry and discusses whether finance could help spread the cost.
What is a VAT loan?
A VAT loan (sometimes called VAT finance or VAT funding) is commercial borrowing used to cover a VAT bill. A lender provides the money, the VAT is paid to HMRC, and the business repays the lender over an agreed term, with interest and any fees.
Providers set it up in different ways:
- Dedicated
A dedicated VAT loan.
Some providers offer a short-term loan sized to a specific VAT bill.
- General
A general business loan used for VAT.
Some businesses use a standard business loan, or another facility, to pay the bill.
- Revolving
A revolving facility.
Some businesses draw on a line of credit when a VAT payment falls due.
Who receives the money also varies. Some providers pay HMRC directly; others pay the funds to the business, which then pays HMRC. The agreement sets out how it works.
The money may go to
HMRC the business
How VAT loans usually work
The details depend on the provider, but VAT loans tend to follow a similar pattern:
- 01
The amount is linked to the VAT bill.
The lender may ask to see the VAT return or an HMRC statement showing what’s due.
- 02
The VAT is paid.
Either the lender pays HMRC directly, or the funds go to the business to pay HMRC itself.
- 03
The business repays the lender.
Repayments are made over the agreed term, usually in regular instalments, with interest and any fees.
How long the term is, how repayments are scheduled and whether any security is needed all vary between providers and products.
Compare your options
Want to compare your funding options?
When a VAT loan may fit
A VAT loan may suit a business that:
- can afford the repayments over the loan term, from income it expects to receive
- wants to pay HMRC on time and keep cash available for running costs
- faces a large or uneven VAT bill, for example after a busy quarter
- has compared the full cost of the loan with its other options
It may not be the right route where:
- the business can’t afford its tax at all, so borrowing would add another debt to repay. HMRC’s guidance on difficulties paying tax ↗ is the place to start, and independent advice may help.
- VAT is only part of a wider cash-flow squeeze (see Working Capital Loans)
- the VAT relates to buying commercial property and is expected to be reclaimed. That’s usually a separate type of short-term property finance (see Bridging Finance).
What providers may look at
Criteria vary between providers. They may look at:
- the VAT return or HMRC statement showing the amount due and the deadline
- business bank statements and recent accounts
- how long the business has been trading, and its turnover
- existing borrowing, including any earlier tax-related borrowing
- the company’s and directors’ credit history
What to check before you agree
Before accepting a VAT loan, compare:
Your options when a VAT bill is due
Finance is one route. If paying the full bill on time would be difficult, HMRC may agree a payment arrangement with you directly, and if the business can’t afford its tax at all, borrowing would add another debt. This is for orientation only: it doesn’t check eligibility or recommend a route.
-
Route A: Pay HMRC in full
- When it may apply
- The business can pay the whole bill by the deadline without putting its finances under strain.
- What happens next
- Pay HMRC by the deadline on the return.
-
Route B: Ask HMRC about a payment arrangement
- When it may apply
- Paying in full on time would be difficult.
- What happens next
- HMRC may agree a payment plan so you can pay in instalments. HMRC checks whether a plan is affordable for the business.
If you cannot pay your tax bill on time (GOV.UK) (external site)
-
Route C: Consider commercial finance
- When it may apply
- The business could afford to repay a lender over a short period, and wants to pay HMRC on time.
- What happens next
- Compare the full cost and terms of any loan before agreeing to it. See “VAT loan or HMRC payment arrangement?” below.
If a VAT payment is late, HMRC may charge late-payment penalties and interest. Penalties start once a payment is more than 15 days overdue, and interest is charged from the first day it’s overdue. An agreed Time to Pay arrangement can mean lower, or no, late-payment penalties. How late payment penalties work (GOV.UK) ↗
This shows the routes in general terms. It isn’t tax advice, and it doesn’t tell you which route is right for your business.
VAT loan or HMRC payment arrangement?
A VAT loan is borrowing from a lender; an HMRC payment arrangement is an agreement with HMRC itself. Neither is automatically the better choice.
A VAT loan and an HMRC payment arrangement compared
VAT loan (commercial finance)
- Who you deal with
- A lender
- What it is
- Borrowing that pays the VAT bill, repaid to the lender
- Assessment
- The lender’s own checks and criteria
- Cost
- Interest and any fees set by the lender
- Late-payment penalties
- Avoided on the VAT itself if HMRC is paid on time; the loan still has to be repaid
- If payments are missed
- Consequences under the loan agreement, which may include any security or guarantee
- Where to start
- A lender, or a Wize Finance enquiry
HMRC payment arrangement (Time to Pay)
- Who you deal with
- HMRC
- What it is
- An agreement to pay HMRC what you owe in instalments
- Assessment
- HMRC checks whether a plan is affordable
- Cost
- HMRC may charge interest on tax paid late
- Late-payment penalties
- An agreed arrangement can mean lower, or no, late-payment penalties
- If payments are missed
- HMRC may ask you to pay the full amount
- Where to start
- HMRC, via GOV.UK
Other ways businesses fund VAT bills
-
A general business loan. If the VAT is one of several costs, a single business loan may cover them together. See Business Loans.
-
A short-term loan. For short-dated borrowing that isn’t tied to one bill, see Short-Term Business Loans.
-
A business line of credit. If VAT pressure comes round every quarter, a reusable limit may suit some businesses better than borrowing each time. See Business Line of Credit.
-
Other tax bills. Some businesses ask about funding for other tax bills too, such as Corporation Tax. The same questions apply: compare the full cost, and look at HMRC’s payment options as well.
Worth knowing
-
It’s still a debt.
A VAT loan pays HMRC on time, but the business then owes the lender, with interest and fees.
-
Security and guarantees vary.
Some providers may ask for security or a personal guarantee. Check exactly what’s required before you sign.
-
Repeated borrowing for VAT is a signal.
If the business borrows for VAT every quarter, it may help to look at how VAT is set aside as it’s collected, or at a more suitable facility.
-
If the business is in financial difficulty,
HMRC’s guidance on difficulties paying tax ↗ and independent advice are a better first step than new borrowing.
How Wize Finance works
Wize Finance uses the information you give us to understand what your business needs. Where appropriate, it introduces the business to a finance provider. The provider assesses the application and makes the decision.
After you submit your details, the Wize Finance team reviews your enquiry and contacts you to discuss your funding needs and next steps. Where appropriate, your details can then be shared with a suitable funding provider.
Start your enquiryFor a VAT bill, it helps to tell us:
- the amount due and the deadline on your VAT return
- whether the VAT is already overdue, or in an HMRC payment arrangement
- whether the VAT bill is part of a wider funding need
VAT loan FAQs
What is a VAT loan?
A VAT loan is business finance used to pay a VAT bill to HMRC. The business then repays the lender over an agreed term, with interest and any fees. Some providers offer a loan specifically for VAT; others provide a general facility that can be used for it.
Is VAT finance the same as a VAT loan?
Usually, yes. “VAT finance”, “VAT funding” and “VAT loan” are often used for the same thing: commercial borrowing to pay a VAT bill. Check how a particular product works, because providers structure it differently.
Can the lender pay HMRC directly?
Some providers pay HMRC directly; others pay the money to the business, which then pays HMRC. The agreement sets out which applies.
Is a VAT loan better than an HMRC payment arrangement?
Not necessarily. A VAT loan is borrowing from a lender, with its own cost and terms. An HMRC payment arrangement is an agreement with HMRC, which checks whether a plan is affordable and may charge interest. Which suits a business depends on its circumstances, so it’s worth looking at both. If finance looks worth exploring, Wize Finance can talk through which types may suit.
I’ve already missed the VAT deadline. What should I do?
Contact HMRC as soon as possible. HMRC’s guidance explains the options if you can’t pay on time, and an agreed payment arrangement can mean lower, or no, late-payment penalties.
Is a VAT loan secured?
It depends on the provider. Some VAT loans are unsecured; others may need security or a personal guarantee. Check the agreement before you sign.
Can I use a VAT loan every quarter?
Some businesses do, but repeated borrowing for VAT adds cost each time. If VAT pressure comes round every quarter, it may help to look at how VAT is set aside or at a facility designed for recurring needs, such as a line of credit.
VAT bill coming up?
Tell us how much is due, when it’s due and what else the business needs funding for. Wize Finance can then help you see which types of finance may suit it.
- how much is due
- when it’s due
- what else the business needs