VAT finance for recruitment agencies

How cash moves in recruitment

The agency charges VAT on the full invoice value, including the worker's pay, so the VAT liability can be large relative to the agency's margin.

Why VAT can put pressure on working capital

A VAT deadline that coincides with a payroll run creates two significant outflows in the same week.

Growing a contractor book increases both payroll and VAT before the additional client receipts arrive.

An illustrative example

An agency with a growing contract desk has a £65,000 VAT payment due in the same week as a £90,000 payroll run.

Funding the £30,000 difference may avoid drawing payroll cash down to an uncomfortable level. Figures are illustrative and finance involves an additional cost.

How VAT finance may work

The business applies for finance for all or part of the VAT liability. If approved, the funds are used towards the VAT payment and the business repays the finance provider over the agreed term.

Things to consider

• The pattern of weekly or monthly payroll against client payment terms
• Whether an existing invoice finance facility already covers the timing gap
• Client concentration and the risk of a slow-paying customer
• How repayments sit alongside future payroll commitments

Eligibility depends on the business and the finance provider, not on its sector alone.