What are VAT loans?
VAT loans are unsecured, with repayments typically spread over 3 months. Often, no PG is required and VAT funding can be renewed on a draw-down basis each quarter.
Businesses can access between £1,000 and £500,000, repaying the money in small monthly installments with interest. After applying for a VAT loan, you can expect the funds to be released within 24 hours.
The facility is easy to set up and, once active, can be renewed quarter on quarter, on a rolling basis.
With a short term VAT loan, often there is no requirement for a personal guarantee.
What businesses apply for VAT loans?
All businesses that are VAT Registered can apply for VAT Loans. Businesses which have cyclical cash-flow management issues benefit greatly from spreading the VAT payment.
Any business that suffers from irregular cash flow could benefit from a commercial VAT loan. Turning a quarterly payment in advance into a monthly payment in arrears improves and steadies cash flow.
We receive applications from a variety of business types from a diverse range of industries. Typical applicants include:
Applying For A Loan To Pay A VAT Bill
Step 1:
Click on the application page. To ensure we match you with the best lender, we will ask for more information about your business. Please be ready to tell us:
- The name of your business
- The number of years you’ve been in business
- The amount you are looking to borrow to cover your VAT bill obligations
Step 2:
Carefully read through the terms and conditions, if happy, click ‘get my quote’. From here, one of our approved business finance suppliers will help you find the correct lender for your VAT bill loan, and will process and review your application.
Step 3:
One of our account managers will be in touch by phone or email to discuss the terms of your VAT loan or advance agreement.
Step 4:
After carefully reading through the terms of your VAT loan agreement, please sign the relevant documentation and return it to the lender. Typically funds are paid directly to HMRC on your behalf and repayments are deferred for 30 days.
WHAT IS VAT?
Understanding Business VAT Loans
What Is VAT (Value Added Tax)?
VAT (Value Added Tax) is a consumption tax charged on most goods and services sold by VAT-registered UK businesses. Businesses collect VAT from their customers and pay it to HM Revenue & Customs (HMRC), usually on a quarterly basis.
VAT is charged at a rate set by HMRC and depends on the type of goods or services being supplied. For many businesses, VAT can create a significant cash-flow pressure, especially when large VAT bills fall due before customers have paid invoices — which is why VAT loans and VAT payment spreading solutions are commonly used.
VAT Rates in the UK
There are three main VAT rates that UK businesses need to understand:
Standard Rate – 20%
Applies to most goods and services, including:
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Professional services
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Construction services (with some exceptions)
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Retail products
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Hospitality and leisure
This is the most common rate and the one that typically leads to the largest VAT bills.
Reduced Rate – 5%
Applies to specific items such as:
-
Domestic energy supplies (gas and electricity)
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Certain home energy-saving materials
Zero Rate – 0%
Applies to essential items, including:
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Most food and drink
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Public transport
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Children’s clothing and footwear
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Books, newspapers, and magazines
⚠️ Even though zero-rated items are taxed at 0%, they still count as VAT-taxable turnover, which is important for VAT registration thresholds.
Why VAT Can Cause Cash-Flow Issues
VAT is often due before your customers pay you, meaning businesses must fund the VAT payment themselves. This is one of the most common reasons UK businesses look for:
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VAT loans
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VAT payment plans
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Short-term VAT funding
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Ways to spread VAT payments over monthly instalments
This is exactly where VAT loans can provide breathing space without disrupting day-to-day trading.
When Do I Register For VAT?
When your business grows and gets to a stage where its annual sales of taxable goods and/or services exceed the £90,000 VAT threshold, you must register for VAT.
After registering, HMRC will send you a VAT registration certificate which confirms your VAT number, when to submit your first VAT Return and payment and your ‘effective date of registration’.
Businesses can also choose to voluntarily become VAT registered, providing that the goods and services they sell aren’t exempt from VAT charges. After registering, there are certain legal responsibilities that business owners must follow including:
- Charging the right amount of VAT
- Paying any VAT due to HMRC
- Submitting VAT returns
- Keeping VAT records and a VAT account
VAT Returns
Business owners of registered UK businesses are typically required to submit a VAT Return to HMRC every 3 months, regardless of whether the business has any VAT to pay or reclaim. This 3 months is referred to as your business ‘accounting period’, and the VAT Return records:
- Your total sales and purchases
- The amount of VAT owed
- The amount of VAT that can be reclaimed
- What your VAT Refund from HMRC is
Paying Your VAT Bill
You must pay your business’ VAT bill before the deadline passes. The deadline will be shown on your VAT Return and the only exception to deadlines are if you use the Annual Accounting Scheme or ‘payments on account’. As with Corporation Tax, you must ensure your payment reaches HMRC’s bank account before the deadline. Surcharges apply if you don’t manage to make payments on time.
| Payment Method | Time Taken |
|---|---|
| CHAPS | Same day / next day |
| Online Banking | Same day / next day |
| Telephone Banking | Same day / next day |
| Direct Debit | 3 working days |
| 1st Time Direct Debit | 5 working days |
| Bacs | 3 working days |
| Bank / Building Society | 3 working days |
HMRC sets up VAT online accounts for all businesses registered for VAT. You can check your VAT Return and payment deadlines online.
How To Pay Your VAT Bill
Businesses are required to pay VAT to HMRC electronically, most commonly through internet banking and direct debit. The latest rules state most businesses are not allowed to pay by cheque. If you are having issues paying your VAT, get in touch with HMRC as soon as you can.
If you choose to take a VAT loan facility with SME Loans, typically our solution will pay HMRC directly on your behalf and set up a Direct Debit so you can repay the loan on day 30, 60 and 90.
CAN I TAKE A LOAN TO PAY A VAT BILL?
VAT Loans
After setting up an established company, several business owners cite their first stumbling block in business as knowing how to treat and manage VAT. Particularly true in the early stages of trading, as the owner of a startup it’s likely you’ll be involved in all areas of operations, including VAT obligations.
Owing the government money is a situation that no business owner wants to end up in, but without enough solid working capital it can be difficult to make payments on time. At SME Loans, we offer VAT bill loans that provide a quick, secure way of financing VAT bills. The loans we offer are short-term, which suits the 3 month accounting period caps that HMRC sets.
CAN I ARRANGE A PAYMENT PLAN WITH HMRC TO PAY VAT?
HMRC’s Payment Plans
If you don’t manage to pay your VAT bill before the deadline, be aware that HMRC will likely take ‘enforcement action’ as a way of getting the money from you. In the event you can’t pay your bill, or have missed your last deadline – don’t panic. Contact HMRC as soon as you can, in these situations – regular, honest communication is key.
What should I do if I’m not sure whether I’ll be able to pay my VAT bill?
If you don’t think you’ll be able to pay before the deadline:
Contact Us – We can put in place a bespoke VAT Loan facility in a matter of hours and pay HMRC directly on your behalf.
If you miss your deadline:
SME Loans can fund VAT loans retrospectively, i.e. after the deadline. However, it is also a good idea to contact the relevant HMRC department/office that sent you the letter explaining you have missed your deadline.
Contact: Self Assessment Payment Helpline – 0300 200 3822
In certain situations, HMRC allows businesses to set up payment plans to pay their VAT bill in instalments. The payment plans exist to help businesses that have poor cash flow and are struggling with payments. These payment plans increase the amount of time you have to pay your bill. When setting up your payment plan, you will need to have your password and Government Gateway User ID to hand.
Please be aware that if you don’t take these actions when it comes to paying your VAT bill, enforcement actions that HMRC can take as a way of collecting the tax you owe include:
- Collecting the owed money through your earnings or pension
- Involving debt collection agencies
- Taking things you own and selling them
- Removing the money from your bank account directly
- Taking you to court
- Closing down your business or declaring you bankrupt
Such repayment options are known as TTP (Time to Pay). It is important to note that whilst HMRC has been more lenient due to Covid, traditionally they will limit businesses to only 1 or 2 Time to Pay arrangements. Once this is used, a business would have no option but to use funding solutions at times when they do not have the cash-flow to support paying the quarters VAT in full.
VAT LOANS FAQS
Frequently Asked Questions
If you still have unanswered questions about VAT loans, then make sure to check out our FAQs below for more information.
This helps businesses manage cash flow more effectively, keep funds available for day-to-day trading, and remain fully compliant with HMRC requirements.
Getting a VAT loan with SME Loans is quick and straightforward.
You can apply online by completing a short application form, where we’ll ask for:
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The amount you’d like to borrow
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Basic details about your business
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Personal and contact information
Once your application is reviewed, a dedicated account manager will contact you to discuss your options and confirm the most suitable VAT loan available to you.
VAT loans are typically available to businesses that:
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Are a UK-based business
-
Have an upcoming or recent VAT bill
-
Have been trading for a minimum period of 12 months
-
Can demonstrate affordability
Businesses choose SME Loans for VAT finance because we focus on speed, flexibility, and cash-flow management.
We work with a panel of regulated UK lenders to help businesses spread the cost of their VAT bill while keeping working capital available for day-to-day trading. In many cases, funds can be transferred within as little as 48 hours, subject to approval.
Why businesses choose SME Loans:
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Access to multiple regulated lenders
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Fast decisions and quick funding
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Simple online application
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Dedicated account management
A VAT loan is suitable for businesses that want to manage cash flow more effectively when paying their VAT bill.
It is commonly used by growing businesses, seasonal businesses, and companies that prefer to retain working capital for wages, stock, or ongoing expenses rather than making a large one-off VAT payment.
A VAT loan is an alternative to HMRC’s Time to Pay arrangement.
While Time to Pay involves dealing directly with HMRC and ongoing compliance requirements, a VAT loan allows businesses to pay HMRC in full and repay the cost in fixed instalments, providing certainty and protecting future cash flow.
Most VAT loans are unsecured, meaning no property or assets are required as security.
Terms and requirements vary depending on the lender and the financial profile of the business.
Furthermore VAT loans up to £100k are available without PGs (Personal Guarantees)
VAT loans may still be available even if your business or personal credit is not perfect.
Lenders will typically assess overall affordability, business performance, and trading history, rather than relying solely on credit score.
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