Managing cashflow or planning for business growth can be some of the biggest challenges an SME may face. When quarterly VAT bills and annual Corporation Tax are due, they sometimes clash with payroll, supply costs, or seasonal fluctuations. This can create financial strain, threatening growth or worse, business stability.
With more than 430,000 UK SMEs currently struggling to pay their tax bills, and 9/10 accountants reporting an increase in clients facing difficulties, it may be time for business owners to reconsider how they handle their tax obligations.
One solution that’s becoming increasingly popular among SMEs are business loans specifically for funding VAT and Corporation Tax.
Understanding the burden of VAT
If you’re operating a VAT-registered business, you’ll be aware of the consumption tax added to goods or services that you offer. This means that every quarter, you’ll be expected to submit a VAT return and pay any outstanding balance to HMRC.
This can be a challenge when VAT is collected from your customers, but may often need to be spent throughout the quarter. This could be on outgoings such as supplier invoices, wages, operational costs and any unexpected expenses. By the time the VAT deadline hits, usually one month and seven days after the VAT return period ends, that cash may no longer be sitting in your account. That’s where VAT funding becomes a viable option.
What is VAT funding?
VAT funding is a short-term loan designed specifically to cover your quarterly VAT liability. Rather than using your own working capital, a lender pays HMRC directly on your behalf, taking away the hassle. You then simply repay the loan in monthly instalments. This is usually over a 3 month period, however 6, 9 and 12 are also available.
We work with several lenders who specialise in this type of lending, allowing us to offer a streamlined application process and high approval rates. Depending on your business and its financials, some of our lenders require no personal guarantees for loans under £150,000.
What are the benefits of a VAT loan
Opting for a business loan to cover the cost of your VAT bill offers a variety of benefits to your business, including:
- Preserving cashflow: Avoid draining your operating funds to cover a lump-sum tax bill.
- Avoiding HMRC penalties: Late VAT payments can incur fines up to 15% of the owed amount.
- Predicting monthly outgoings: Repay bills in manageable installments that align with your budgeting cycle as well as seasonal cashflow fluctuations.
- Supporting business growth or cashflow concerns: Reinvest working capital into inventory, marketing, or staffing instead of HMRC.
- Seamless renewals: Many lenders offer rolling facilities, perfect for regular VAT cycles.
By utilising funding for your VAT and Corporation Tax bills, you can free up cashflow to make other financial investments in your business. This could be through a deposit or VAT payments on a new hire purchase agreement, or even for property acquisition.
Do you have an upcoming tax bill that you want to look at funding for? Get in touch today. Working with specialist lenders, we can secure the most competitive rates and help you make the most of your cashflow.