What are VAT loans?

Is your company eligible for a VAT loan

VAT is a mandatory tax collected by businesses with an annual taxable turnover of £90,000 or more in a rolling 12-month period VAT is a mandatory tax collected by businesses with an annual taxable turnover of £90,000 or more in a rolling 12-month period. It’s collected on behalf of HMRC and the tax body is quick to take enforcement action against businesses that don’t pay on time.

They charge onerous financial penalties and interest for late or non-payment and if money hasn’t already been allocated to pay a bill it can be difficult for a business to find sufficient funds.

This is when VAT loans, and other loans for HMRC taxes, can help. They’re a short-term form of borrowing that keeps you on track with your tax obligations and helps to avoid the oppressive enforcement procedures commonly undertaken by HMRC.

What is a VAT loan?

VAT loans are generally unsecured loans so you don’t need an asset as collateral, although some lenders may ask you for a personal guarantee. A VAT loan spreads the cost of your VAT bill over a fixed term, which is typically between three and 18 months.

Funding of around £5,000 to £250,000 may be available and is paid directly by the lender to HMRC. You then repay the financier over the agreed term in affordable fixed monthly instalments.

In what circumstances might you need a VAT loan?

Securing a VAT loan might form part of a strategic plan to preserve your business capital for use on other projects or investments. The funding also provides invaluable support if you’re experiencing poor cash flow.

Additionally, VAT loans can help businesses manage seasonality issues and smooth out cash flow through the year. They provide a sustainable way to meet your tax liabilities and retain a positive relationship with HMRC.

Eligibility for HMRC VAT loans

VAT loans are available for limited companies, sole traders, and partnerships in all industries. You may be eligible if:

• You’re VAT-registered
• Your annual turnover exceeds £85,000
• Your business passes the credit checks and affordability checks carried out by lenders

You’ll need to provide documentation in support of a VAT loan application, including sales and cash flow forecasts, historical financial information and your plans for the future. This reassures lenders that you can afford the loan for the full term and don’t pose a high risk of default.

Advantages of VAT loans and how to apply

The benefits of securing funding for VAT include:

• Spreading the cost of your VAT bill
• Protecting working capital availability
• Maintaining a positive relationship with HMRC
• Avoiding hefty financial penalties and charges for late or non-payment

UK Business Finance can help you find the best deals on VAT loans based on your business’s needs. We’ll scour the whole of the market and identify the best interest rates, loan terms, and lenders’ fees, whilst also taking note of any other borrowing requirements you might have.

Our team provides support throughout the process and can make an application on your behalf if necessary. We’re a reliable independent commercial finance broker so please get in touch with one of the team for more information.