What is a VAT loan? | moneyfacts.co.uk

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Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 22/01/2021

At a glance

  • A VAT loan will pay your VAT bill on your behalf direct to HMRC
  • A VAT loan can free up cashflow for investment in your business
  • You should try to save cash to pay your VAT bill as finance can be expensive

How does a VAT loan work?

A VAT loan is used to pay the quarterly VAT bill of VAT registered businesses. The lender pays the VAT bill directly to HMRC and the business then makes monthly repayments to the lender. This means the business can used the money free up to invest in its business or to respond to fluctuations in revenue or increasing costs, for example due to seasonality.
Businesses that are struggling to pay their VAT due to problems with their cashflow can also consider asking HMRC for a longer payment period.

How often can I have a VAT loan?

A VAT loan can be used for one quarter or be made available on a drawdown basis. This means the business can call upon the lender quickly and on an ongoing basis.

Which businesses are eligible for a VAT loan?

Usually, VAT lenders will want businesses to be based in the UK, to be a limited company and to have a trading history of more than 12 months. Turnover should also be more than £85,000. VAT loans are available to many different types of businesses form manufacturing firms to professional services, agricultural businesses to IT consultancies. And, the most obvious requirement is that the business should be VAT registered.

How to get a VAT loan

A business broker will help you determine if a VAT loan is the most suitable form of finance for your business, Other alternatives include business credit cards, invoice finance, asset finance or a business loan.

What are the benefits of a VAT loan?

A VAT loan will be paid directly to the HMRC, ensuring that you meet the legal requirements of being VAT registered and avoid any late payment surcharges. Instead of paying one single quarterly bill, this can be smoothed across three-months – although there will be interest to pay on the VAT loan. Money released from using a VAT loan ca be invested into other business areas.

What are the downsides of a VAT loan?

VAT loans can be expensive compared to other forms of business finance. Business owners should consider the cost of this finance compared to other lending options along with how quickly they need access to the funds.

Save for your VAT bill

If you are VAT registered, then your business needs to be able to pay its VAT liabilities to be viable. Your business should look to save the money owed each month to make sure it has enough funds ready to pay your quarterly tax bill. There can be reasons when this becomes difficult and when asking HMRC for an extension may help. In addition, you may want to release cashflow early in which case a VAT loan can be a way to do this quickly and conveniently.
Find the best business savings accounts for your VAT cash.

Does my business need to pay VAT?

Your business must register for VAT if your VAT taxable turnover is going to be more than £85,000 or if you know that it will exceed this amount. There are specific deadlines for when this registration must be completed by, the HMRC has more information about VAT deadlines and registration.

How do I check my VAT bill?

VAT returns and deadlines to pay your VAT bill can be checked using your VAT online account.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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At a glance

  • A VAT loan will pay your VAT bill on your behalf direct to HMRC
  • A VAT loan can free up cashflow for investment in your business
  • You should try to save cash to pay your VAT bill as finance can be expensive

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