A simple guide to VAT loans

VAT receipts for the 23/24 tax year amounted to £169 billion. This represented a 6% increase on the previous tax year. If you’ve recently passed the £90,000 revenue threshold that triggers a need to pay VAT, or if you’ve been hit by a VAT bill that surpassed your budgeted expectations, you may be wondering what you can do to pay. This may be especially true given VAT payments are due quite quickly after submission – only a month and seven days from the end of any given quarterly period. 

If you need support paying a VAT bill, read on. We’re covering what VAT loans are, along with their benefits and drawbacks, and how you can apply for one. 

What is a VAT loan? 

VAT loans are a form of finance that enables businesses to pay their VAT bill on time without using up their cash reserves. This helps to reduce the impact on short-term working capital. 

The process goes a little like this: 

• Submit your VAT Returns to HMRC 

• Find out how much you owe 

• Decide if you'll pay the bill using internal cash reserves or with a VAT loan 

• Apply to a lender for the funds – a business broker like Funding Options by Tide can help you here

• Submit any requested documentation 

• Wait for a decision

• If approved, funds will be released to a chosen bank account 

• Use the funds to pay the VAT bill before the one month and seven-day deadline 

• Repay the loan by the pre-set timeline – this is usually done in instalments on a monthly basis

Businesses usually seek out VAT loans for one of the following reasons: 

• They’re experiencing a seasonal bump in cash flow 

• The VAT bill was unexpected 

• They require their cash reserves to fund an exciting upcoming opportunity 

• They’ve been hit by an unexpected cost – for example, maybe an essential piece of equipment has broken down and needs repairing 

• One or more clients haven’t paid on time 

How can you get a VAT loan? 

The first step to getting a VAT loan is to apply. Start by finding a lender and loan you’re happy with, then submit your application to them along with any documents they ask for. 

We work with over 120 lenders helping facilitate loans ranging from £1,000 to £20 million. Our team of experts can help you find out if you’re eligible for a VAT loan, and if so, they could also help you find the most suitable loan for your unique needs. Get a quote here and we’ll be in touch soon with more information.  

Benefits of using a VAT loan 

A VAT loan can be a helpful way to prevent a big impact to cash flow occurring as the result of a bill. Here are some of the benefits of VAT loans. 

Stable cash flow 

VAT loans can help you spread the cost of a bill, reducing the bill’s impact on your cash flow and working capital. 

Flexible repayment options 

There are many different types of loans that can be used to pay a VAT bill, each with their own repayment terms. The options for repayment are wide and varied, ranging from paying the full amount back within a few months to spreading the cost over regular monthly instalments spanning several years. 

Avoid late-payment penalties 

By taking out a VAT loan before the VAT deadline, you can potentially prevent late-payment penalties from HMRC. 

Drawbacks of using a VAT loan 

A VAT loan is not a long-term solution – nor is it a sustainable tax payment strategy. It's a quick-fix answer to an immediate concern. This type of funding exists to help you cover a surprise bill, or to help smooth cash flow bumps during a low-revenue or high-cost period. It’s not meant to be used every quarter. 

Regular use can snowball into a debt cycle. This is where business owners continue taking out new loans to cover the old loans in an unhealthy cycle that's hard to break. Only consider taking out a VAT loan if you're sure you are able to properly manage debt and regularly review your business finance structures to ensure you are not falling into a debt trap. 

The types of VAT loans available 

There are many different types of business loans that can be used as VAT loans, including the following.  

Secured business loan 

A secured business loan uses an asset as collateral for the loan. This makes it a suitable way to pay a particularly large VAT bill as the interest rates are generally lower and the loan amounts are higher.

Short term business loan 

If you only need a little breathing room between getting a VAT bill and paying it, a short term business loan may be a suitable option. 

Unsecured business loan 

Unlike a secured business loan, an unsecured business loan doesn't require collateral. These types of loans usually come with higher interest rates and lower loan amounts than secured loans. 

Small business loan 

If the VAT loan is quite small – say, several thousand – a small business loan could be a helpful way to ensure you pay the bill on time without taking out more debt than is necessary. 

Invoice finance 

If you're waiting for a client to pay so that you can pay the VAT bill, invoice finance could be a good option. Invoice finance lets you either sell an unpaid invoice or take out a loan against the invoice, essentially unlocking access to cash early. 

Merchant cash advance 

Do you run a retail business or regularly take card or debit payments? If so, a merchant cash advance (MCA) could be a good way to pay a VAT bill. MCAs aren’t so much a loan as they are an advance on future earnings. You repay the advance as a percentage of future revenue. 

Get a VAT loan with Funding Options by Tide

Need a loan to help you pay VAT? We may be able to help. We’re Funding Options by Tide, a leading business broker. We work with over 120 lenders to facilitate between £1,000 and £20 million in funding to our customers. We’ve helped more than 18,000 customers gain access to more than £800 million in total funding. 

To find out if you could be the next company we help, just submit your information via the link below. We’ll be in touch shortly to let you know if you’re eligible for a VAT loan (or another type of funding) and if so, how much you could hope to borrow. 

Find a VAT loan.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.