Value Added Tax (VAT) is an integral part of conducting business in the United Kingdom. However, for many businesses, the regular payment of VAT can place a strain on their cash flow, especially during times of growth or economic uncertainty. To alleviate this financial burden, VAT loans have emerged as a viable solution for UK businesses. In this blog, we will explore what VAT loans are, how they work, and the benefits they offer to businesses in the UK.
VAT loans, also known as VAT funding or VAT finance, are financial products designed specifically to help businesses manage their VAT obligations. These loans enable businesses to bridge the gap between paying VAT to HM Revenue and Customs (HMRC) and receiving VAT refunds or sales payments from their customers. By providing access to the VAT funds before they are recovered, VAT loans offer businesses the much-needed liquidity to support their operations and growth.
VAT loans operate on a simple principle. When a business incurs VAT on its purchases, it pays the VAT to HMRC on a regular basis, typically quarterly or monthly. However, VAT loans allow businesses to access the VAT funds immediately after the VAT return is submitted to HMRC. Lenders provide loans equivalent to the VAT amount due, which the business can utilise for other purposes, such as paying suppliers, investing in new equipment, or covering operational costs. The loan is then repaid once the business receives the VAT refund or sales payments from its customers.
To be eligible for a VAT loan, you’ll need to have the following:
If your VAT payment is more than 15 days overdue, your business will receive late payment penalties. The sooner you pay your VAT bill, the less late payment penalties will apply. You can find out more about late payment penalties.
As with any business loan, the amount you can borrow for a VAT loan will depend on a number of factors, including your business credit score and turnover.
Use our funding calculator to see how much you can borrow for a VAT loan.
VAT bills are usually paid every quarter of the year, so VAT loans tend to be short term 3-12 months. You could get a VAT loan every 3 months if your business is in good standing.
A VAT bridging loan can be used if a business needs to “bridge the gap” and cover the cost of their VAT bill if cashflow is tight. It is a fast and short term finance solution.
Login to your Capitalise account and tell us about your fudning requirements for a VAT loan. A funding specialist will give you 1-1 support and send your application up to 4 lenders that are most likely to approve your business. You could receive a VAT loan in as little as 48 hours.