What are VAT loans?

What are VAT loans?


min read

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What are VAT loans?

Value Added Tax (VAT) loans give you the possibility to spread the cost of your VAT bills over 3 months. Simply put, they are short-term business loans that have been made to give you flexibility and some breathing space. They’re here to help you budgeting, managing cash flow, and avoiding penalties for late payments. The terms of VAT loans vary depending on the lender, sometimes requiring collateral or a personal guarantee, and may come with higher interest rates than other types of loans. 

There are alternative funding options on the market such as business loans, invoice financing or merchant cash advances that may have more flexible repayment terms and lower interest rates.

How do VAT loans work?

If you decide to opt for a VAT loan and submit an application, the procedure is quite simple. After a successful application, your loan company will make a payment directly to HMRC. You'll then have to pay back your loan across a period of 3-12 months, typically.

Are VAT bridging loans the same as VAT loans?

Bridging loans, while sounding similar, are actually different. You use them to cover the VAT cost on the purchase of a commercial property. Since real estate can be so complex, VAT costs for real estate purchases can pop up much later in the buying process. And given how expensive properties are, the cost of VAT can be eye-watering. Because of this, investors often use VAT bridging loans to secure the sale of a property.

The pros and cons of VAT loans

If you're in a tight spot with your VAT payments, a VAT loan may be just what you're after. But before you decide if a VAT loan is right for you, here are a few pros and cons to think about:

Advantages of a VAT loan

  • HMRC gets the money directly
  • You pay your VAT bill in installments, rather than a lump sum
  • Can free up cash flow for your business

Disadvantages of a VAT loan


VAT loan providers

There’s no shortage of VAT loan providers in the UK. Some of the most popular lenders include:

Braemar Finance

  • Offers VAT as well as business tax loans
  • VAT loan terms up to 3 months
  • Get access to a quarterly drawdown
  • Online application

Bluestar Leasing

  • Also offer VAT and business tax loans
  • VAT loan for a maximum term of 3 months
  • Loans start from £25,000
  • Need to have been trading for 2 years minimum

Merchant Money

  • Short-term loans of 1-6 months
  • Maximum term up to £150,000
  • 90% approval rate
  • No hidden fees

Do you pay VAT on a loan?

You won't have to pay VAT when you take out a business loan, as the interest on business loans is not subject to VAT.

What are the alternatives to VAT loans?

Keeping your cash flow consistent can be tricky, especially when bills are due. With the right loan, you don't have to worry about falling behind on your VAT. Of course, getting a VAT loan isn't the only option. If you're looking for something with a little more give, take a look at our Flexi-Loan - a unique solution tailored to small businesses like yours. The money you need, when you need it.

Alternatively, a Revenue-Based Loan allows you to borrow money and pay it back at a rate relative to your business earnings, provided you meet a minimum threshold. If your sales are steady, these types of loans can be a lifesaver.

Words by
Sean Martin
Article updated on:
October 24, 2023

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