Yes, you can get a loan to pay your VAT bill. A VAT loan is a short-term business loan that covers your VAT bill in full, so HMRC is paid on time and you repay the lender in instalments instead.
VAT bills can be large, and they often land at the same time as other costs. Spreading the payment can protect your cashflow and help you avoid penalties for paying late.
How Does a VAT Loan Work?
A VAT loan works like any other short-term business loan. You borrow the amount you owe, use it to pay HMRC by the deadline, and then repay the lender in fixed monthly instalments, usually over a period of months rather than years.
Because VAT is due every quarter for most businesses, some companies use a VAT loan once to get through a difficult quarter, while others use them regularly to smooth out their cashflow across the year.
When Is My VAT Bill Due?
For most businesses, payment is due one calendar month and seven days after the end of your VAT period, the same as your return. You can check the exact VAT return deadlines that apply to you in your VAT online account, along with the different ways to pay your VAT bill.
It’s important to make sure the money reaches HMRC by the deadline, not just leaves your account on that day.
What Happens If I Don’t Pay My VAT Bill on Time?
If you pay late, HMRC can charge penalties and interest on the amount you owe, and the longer it remains unpaid, the more it costs. Repeated late payments can also lead to closer scrutiny from HMRC, which takes time to deal with.
That’s why it often makes sense to borrow before the deadline rather than wait and fall behind.
Can I Agree a Payment Plan With HMRC Instead?
You may be able to. If you cannot pay your tax bill on time, HMRC may agree a Time to Pay arrangement that lets you pay what you owe in instalments. HMRC will check whether the plan is affordable before agreeing to it, and interest is still charged on the outstanding amount.
A Time to Pay arrangement can be a good option, but it isn’t guaranteed. Some businesses prefer a loan because they know the terms upfront and can keep their account with HMRC fully up to date. Acceptance also offers loans to pay HMRC for other tax bills, such as Corporation Tax and PAYE.
Is a VAT Loan a Good Idea for My Business?
A VAT loan makes most sense when the problem is timing rather than affordability. For example, a business may be owed money by customers but need to pay HMRC before those invoices are settled. In that case, a short-term loan simply bridges the gap.
If your business regularly struggles to cover its VAT bill, it’s worth looking at how you manage cashflow for your business, for instance by setting aside VAT in a separate account each time a customer pays you.
Can I Pay Off a VAT Loan Early?
In many cases, yes. If a large customer payment comes in sooner than expected, clearing the loan early may reduce the total interest you pay. Check the terms before you sign, as some lenders charge an early repayment fee.
See also: Can Business Loans Be Repaid Early?