How VAT finance works

Why businesses use VAT finance

VAT itself is normally predictable. The difficulty is often timing.

A company might know that a £40,000 VAT payment is approaching while also needing cash for wages, suppliers, stock, equipment or investment.

VAT finance changes the timing of that cash outflow. It does not reduce the VAT liability. It allows an eligible business to finance the payment and repay the finance over time.

A simple example

The application process

1. 01

   Tell us what you need to pay

   Enter your VAT liability into the calculator and choose the repayment option that suits your requirement. You will see an indicative repayment immediately.

2. 02

   Send us your details

   Provide basic information about your company, the VAT payment and its due date. This takes a few minutes and does not commit you to anything.

3. 03

   Your application is assessed

   We review the enquiry and, where appropriate, introduce it to a suitable finance provider. The lender may ask for further information before making a decision.

4. 04

   The VAT liability is funded

   If the application is approved and the finance agreement is completed, the funds can be used towards settling the VAT liability.

5. 05

   Make the agreed repayments

   Your business repays the finance provider in line with the agreed schedule.

Can VAT be paid directly to HMRC?

Depending on the finance arrangement, funds may be paid directly towards the company's HMRC liability rather than being transferred to the company for unrestricted use.

The precise payment process depends on the lender and facility.

Can I finance only part of my VAT bill?

Potentially, yes. A business might decide to contribute some of the VAT payment from its own cash and finance only the balance.

For example, a £60,000 VAT liability could be funded with £40,000 of company cash and £20,000 of external finance. This reduces the amount borrowed while still protecting part of the company's working capital.

What information is normally required?

Requirements vary between finance providers, but a business may be asked for information such as:

• Company details
• VAT liability
• VAT payment deadline
• Recent financial information
• Bank statements
• Management accounts
• Details of existing borrowing
• Information about the directors

Not every item will be needed for every application.

Things to consider

VAT finance can improve short-term cash flow, but it also introduces a finance cost and a future repayment commitment. Before borrowing, a business should consider:

• Whether it can comfortably meet the repayments
• The total cost of the finance
• Whether existing facilities could be used instead
• Whether HMRC Time to Pay may be relevant
• The impact on future cash flow