Home > Blog

The step by step guide to VAT and tax loans

Well within living memory, some businesses regarded tax bills as things that had to be taken seriously but which could, typically, be put onto the back burner in payment terms.

That was because the government’s tax collection regimes of the time were relaxed and broadly speaking, often erratic. As a result, if a business simply didn’t have the funds to pay when the amount was due, it was tempting and actually possible to simply delay payment – typically without effect.

Today, those times are now consigned to history and the study of “how things used to be”. In the modern business world, the collection regimes of HMRC and other government departments are typically very efficient and focussed.

If you pay your tax late in the 21st century, you run the risk of penalty charges and potential fast recovery action.

Funding challenges

For all that evolution, one thing hasn’t changed for many businesses. Tax bills can still arrive at a bad time in terms of having the funds available to pay them!

There might be many reasons for that. Perhaps:

  • a major investment programme you’ve undertaken is over-running and you’re experiencing delays in the revenue generation you expected as a result;
  • a misfortune has led to some short-term business losses; etc.

It doesn’t matter what the reason, it’s possible you might suddenly find a substantial tax bill on your desk and not have the working capital to pay it when due.

Your options

If you find yourself in such a position, you may find that you’re facing relatively few options:

  • it might be possible to raise the required sum by disposing of an asset. That, however, might inhibit your business going forward;
  • in some cases, your bank might be willing to assist through a loan, however, you may not wish to advertise to your bank that you have such a funding challenge if they’re also providing you with other business banking facilities at the same time;
  • theoretically, you could discuss an extension with HMRC but their ability to help may be limited as typically will be their patience. You should most certainly NOT simply ignore the bill;

Tax loans – how they work

VAT and tax loans are specially designed to help you bridge funding gaps where tax bills are the problem.

VAT and Tax loans are generally unsecured. VAT loans are normally a 3-4 month term and Tax loans can be up to a 12-month term.

In order to obtain such a loan, you’ll typically need:

  • some evidence, usually via official accounts, that your business is broadly healthy – in other words, that your cash flow problem is a temporary and a typical problem rather than an indication that your business isn’t viable;
  • proof of the sums required (usually HMRC demands or similar etc.).

The mechanics of the funding solution that’s appropriate for you may vary depending on your individual situation because not all VAT and tax loans are equally suitable for all businesses.

Your options might include:

  • release of equity through loans against existing assets;
  • personal loans;
  • factoring/invoice discounting – to free capital you have trapped in your credit control operations;
  • short term business loans.

In fact, there are many different approaches to finding a solution for those tax bills that you’re worrying might be unpayable from your own daily working capital.

Rather than fret or even worse, allow an unpaid debt to arise with HMRC, why not take advice now on the options that might be suitable for you?