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.

Standard rate – 20%

Applies to most goods and services, including professional services, construction services (with some exceptions), retail products, and 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) and certain home energy‑saving materials.

Zero rate – 0%

Applies to essential items including most food and drink, public transport, children’s clothing and footwear, and 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.

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 VAT loans, VAT payment plans, short‑term VAT funding and 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 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 the goods and services they sell aren’t exempt from VAT charges. After registering there are legal responsibilities to follow: charging the right amount of VAT, paying any VAT due to HMRC, submitting VAT returns, and keeping VAT records and a VAT account.

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, and what your VAT refund from HMRC is.

You must pay your business’ VAT bill before the deadline passes. The deadline will be shown on your VAT Return; the only exceptions are 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 payments are late.

HMRC sets up VAT online accounts for all VAT‑registered businesses, where you can check your VAT Return and payment deadlines. Businesses are required to pay VAT electronically, most commonly through internet banking and Direct Debit; most businesses are not allowed to pay by cheque.

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.

After setting up an established company, several business owners cite their first stumbling block as knowing how to treat and manage VAT. This is particularly true in the early stages of trading, when the owner of a startup is likely involved in all areas of operations, including VAT obligations.

Owing the government money is a situation 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.

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. If you can’t pay your bill, or have missed your last deadline – don’t panic. Contact HMRC as soon as you can; regular, honest communication is key.

If you don’t think you’ll be able to pay before the deadline, contact us – we can put a bespoke VAT loan facility in place in a matter of hours and pay HMRC directly on your behalf.

If you miss your deadline, SME Loans can fund VAT loans retrospectively. It is also a good idea to contact the relevant HMRC department or office that sent you the letter explaining you have missed your deadline. Self Assessment Payment Helpline: 0300 200 3822.

In certain situations HMRC allows businesses to set up payment plans to pay a VAT bill in instalments. These plans exist to help businesses with poor cash flow and increase the amount of time you have to pay. To set one up you will need your password and Government Gateway user ID. HMRC also publishes guidance on difficulties paying HMRC.