In any business venture, financing is one of the most critical driving forces behind its success or failure. As a business owner, you need to weigh up all the available options to decide what works best for your company. In this blog post, we’ll be exploring the pros and cons of VAT loans vs. traditional financing.

Pros of VAT Loans:

1. Instant Cashflow without Interest Charges

One of the most significant advantages of a VAT loan is that it enables you to forward your VAT returns without facing penalties or charges. Typically, businesses have to pay interest charges, especially if they have outstanding payments. With VAT loans, you’ll receive the money instantly, which helps avoid interest charges and penalties.

2. No Requirement for Security

Unlike traditional financing, VAT loans don’t require collateral. The business doesn’t need to provide any security or put any assets on the line. In other words, if the business is unable to pay, there’s no risk that they’ll lose any assets.

Cons of VAT Loans:

1. Limited Purpose Loan

A significant disadvantage of a VAT loan is that it’s only designed to cover VAT bills. It’s not intended for other expenses such as business expansion, capital improvements or payroll. Nonetheless, for short-term solutions that require immediate cash, VAT loans are an excellent option.

2. Some Providers have Limitations

While VAT loans are an innovative form of lending for businesses, not all companies offer this service. The availability of VAT loans to your business depends on the provider and their conditions.

3. High Interest Rates

The cost of borrowing remains one of the significant challenges of VAT loans. Although rates vary depending on the lender and the borrower’s credit rating, they can be higher than with traditional financing. As a business owner, you must be prepared to pay a higher interest rate if you opt for this type of financing.

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While both VAT loans and traditional financing have their respective pros and cons, in the end, it all depends on a business’s specific situation, financial status and goals. It’s essential to consider carefully which form of financing is right for your endeavour. If you would like more information on the pros and cons of VAT loans vs. traditional financing then please contact us.

One financial aspect that business owners must understand is VAT financing. Whether you’re a new business owner or a seasoned one, navigating through the complexities of VAT financing can be quite challenging. If you’re struggling to manage your VAT or looking for ways to maximize cash flow, this blog outlines some useful tips and strategies to help in navigating VAT financing with ease, as well as the tips and strategies needed.

Understanding your VAT:

The first step in navigating VAT financing is understanding your VAT. By law, businesses must collect VAT on behalf of HMRC and ensure that it is paid promptly. However, not all VAT is equal. Depending on the type of business you run and the industry you’re in, your VAT liability may vary. Therefore, it is essential to understand the VAT you’re required to pay and how it impacts your cash flow. Keep track of your VAT return deadlines and payments to avoid any penalties.

VAT Financing Options:

One of the most useful strategies to improve cash flow is to use VAT financing options. Some businesses opt to finance their VAT payments by borrowing from banks, traditional lenders or using invoice discounting to obtain funds through unpaid invoices. There are also other flexible VAT finance options available in the market. It is essential to research the different VAT financing options and choose one that works best for your business.

Maximizing Cash Flow:

Another way to manage your VAT financing is to maximize your cash flow. One strategy is to ensure timely invoicing and to minimize invoice payment delays. By offering incentives to customers for paying invoices early, businesses can speed up cash inflow. Other measures include reviewing and optimizing inventory management, streamlining purchasing processes, and reducing operational costs. Capitalizing on opportunities to maximize your cash flow can help you alleviate the stress of VAT payments.

Accessing Professional Advice:

While navigating VAT financing can be overwhelming, seeking professional advice can significantly benefit your business. By working with a reputable and experienced VAT expert, you can develop a comprehensive VAT management plan tailored to your business’s needs. A VAT expert can help you understand the different VAT finance options available and offer guidance on maximizing cash flow, VAT recovery, and compliance issues.

Effective VAT financing is essential for businesses to manage their finances successfully. By understanding your VAT, exploring VAT financing options, and maximizing cash flow, you can ensure that your business runs smoothly and efficiently. VAT recovery and accessing professional advice further enhance your VAT financing strategy. Contact us today to find out more information about navigating VAT financing: tips and strategies.

VAT Loans and HMRC VAT Time to Pay arrangements. Whilst both are great ways to relieve cashflow pressures in your business, it may not be clear which is the best option for you. In this article, we’ll compare a VAT loan to an HMRC TTP agreement. Whilst our domain name indicates that we specialise in VAT loans, we’ll strive to present an impartial perspective.

What is a HMRC TTP arrangement?

If you owe debt to HMRC—whether it’s PAYE, Corporation Tax, personal tax, or VAT—you can contact HMRC directly to pay the tax bill over a period of time. This arrangement can span from one month to five years, depending on the type of debt and your circumstance. Typically, you’ll make the request over the phone, and an HMRC representative can often finalise the details during the call. Once you agree on the terms, HMRC will establish a direct debit and send you a confirmation letter. So, if the process is so straightforward, why doesn’t every company choose this option?

Benefits of TTP arrangement

1. No personal guarantee needed. When you sign a TTP, HMRC do not require a personal guarantee. For many of our customers – excluding larger companies and certain professions like architects, accountants and solicitors – we would require a personal guarantee.
2. The HMRC interest rates are lower than VAT loans.
3. HMRC may grant a longer repayment term for the VAT bill, i.e. a period of six months to a year instead of three months when we arrange a VAT loan.
4. Once you get through to HMRC, it can be quick for them to agree the facility. In comparison, a VAT loan may take 24-48 hours to arrange.
5. HMRC do not carry out a credit check. They will not ask for management accounts, bank statements etc.

Issues with a TTP arrangement and benefits to a VAT loan

1. You may not be granted a TTP if you already have HMRC debt elsewhere or an existing TTP in place.
2. Often, just getting through to HMRC can be challenging, stressful and time consuming.
3. There are times when it makes sense to pay more for a VAT loan, such as when you chose not to use a TTP arrangement now to have it as an option in the future.
4. When HMRC charge your company interest for late payments, it’s considered a penalty. In summary, your company cannot claim Corporation Tax relief on the interest you pay them. However, you can reclaim Corporation Tax relief on interest paid on a business loan, effectively making a VAT loan 25% cheaper.
5. HMRC will send yet another ‘brown envelope’ out to you with details of the repayments being taken via direct debit. Many employers do not like this.
6. Funders of leasing and business finance look carefully at bank statements for regular rounded payments to HMRC. For example, £2,000.00 going out every month to HMRC on the 1^st of the month falls outside of normal PAYE and VAT repayments. This can potentially lead to you getting refused for loans elsewhere. The funder would also see a fixed regular repayment going out to a finance company like ours. They would also know there is a loan in place.
7. Once you have paid your VAT loan in full and on time, it is a lot easier to get a secondary loan facility since funders will see a positive repayment history.
8. The timing of your call can impact the fines you incur. The fine starts at 2%, but rises to 4% of the bill if you have not paid after one month. Currently, the interest HMRC charge is 7.5%. (Bank of England base rate plus 2.5%) The best solution is to either pay them on time or sort out a TTP arrangement prior to the bill being due. While you will still need to pay the interest, no fines will be applied.

For more information on VAT Loans, or if you’d like to discuss your options with us, please contact a member of the team on 01494 956 871 or email us on [email protected].

This year in the UK,10,400 firms of solicitor’s will bill circa £50bn in fees and collect £10bn in VAT for HMRC. This is expected to grow to £53bn in 2025 and over £60bn in 2027. Even after taking into account input VAT, that is a massive amount of VAT paid to HMRC.

Whilst there may be mutterings that your finance teams are unpaid tax collectors, paying HMRC every quarter can sometimes be challenging. The more successful you are, the greater your billings, the more your quarterly VAT bill is. Added to this is the issue of work in progress. Your unbilled work does not attract VAT, but the wages and other associated business costs still have to be met very month.

Solicitors in the main are very diligent about paying their HMRC VAT bills on time every quarter. This is one of the reasons why VAT financing for solicitors is so popular.

So what is HMRC VAT financing and how does it work?

It is actually a very simple loan product that has been around for many years. Let’s take an example of a legal practice with a £50,000.00 VAT bill due on the 7^th of November 2024.

Go onto our free VAT loan calculator on the VAT Loan page of our website. Put in £50,000.00 as your VAT bill. It will calculate exactly what the monthly repayment will be over three months, in this case, £17,618.33 per month, giving a total to be repaid of £52,855.00. We do not ask for your company name, we do not track your IP address, this is completely confidential.

Assuming you would like to proceed, we carry out a credit check and communicate back normally within 48 hours with a credit acceptance. A simple e-signature document is sent to you for signing. Our funder will pay HMRC on or before the 7^th November using your VAT number as a reference. You then make three monthly repayments starting on the 7^th December. Once the final payment has been paid on the 7^th February that is the end.

Using the example above, can we just fund some of the VAT bill?

Yes, we can fund from £10,000.00 and you settle the difference. Our funder would look for confirmation you have paid the balance between the VAT bill and the loan.

What information is needed?

Last three months bank statements, latest full set our company accounts if you are filing abridged accounts at Companies House. Directors’ details and a copy of the VAT bill. Management accounts may be needed.

It is now after the 7^th November 2024, can you still fund the VAT?

Yes, up to 14 days after your VAT period end. We cannot fund historic VAT.

I have paid the VAT but would like the cash back as working capital, can this be done?

Yes, some firms of solicitors prefer to pay their VAT bill and then take out a loan. As long as this is done within a couple of weeks of HMRC being paid, this can normally be achieved, subject to credit.

Do many legal firms fund VAT?

Absolutely. Historically, the VAT loan product was just developed for professions such as solicitors and accountants. Now our customers cover not just legal firms but most sectors of businesses.

Are personal guarantees required?

Often they are but this does depend on the size of your practice.

Please note, all loans are subject to credit, personal and or cross company guarantees may be needed.

In this article, we delve into the intricacies of HMRC Loans, offering a comprehensive guide to navigate their process. Securing a bank loan can be a drawn-out, challenging task. Their lending policies often pose difficulties if you’re aiming to borrow merely £8,000 for a quarterly term.

For UK-based firms unable to pay their VAT bills and facing potential 15% HMRC penalties, relief might be on the way. Surprisingly, a variety of reasons lead companies to choose tax funding firms like VAT Loans.

This enterprise thrives on facilitating numerous small-profit, short-term loans – all having repayment durations between three months to a year. There are no hidden charges or document fees that banks usually levy for profit. Our system is straightforward and swift. Transparent documentation allows customers to decide without apprehension.

We require details such as the following:

1. Your borrowing amount (£8,000 to over £1m)
2. Repayment duration (Three months to a year)
3. Preference for initial direct debit repayment timing
4. Your company’s name and contact info.

Upon receipt, we perform swift financial background checks and often provide loan approval indications within minutes, subject to full approval. Personal guarantees from the majority shareholders are obligatory for these HMRC tax funding loans, providing lenders with added security. You assure us that your business will continue operating in the next three to twelve months.

In case you halt operations after paying the HMRC bill from the company’s reserves, you stand to lose only the interest paid. We will seek your consent for a personal search, with full underwriting typically completed within 48 hours.

What follows?

The agreement is emailed to you for signing and returning to VAT Loans. You also need to confirm the date for us to pay HMRC. Most firms prefer the HMRC payment to be made three days before the due date, thereby precluding any late payment penalties. Clients usually request the initial direct debit payment to be deferred by a month post the tax bill payment.

All documents are available on our secure portal and our Tax Funding team is readily accessible for any queries.

HMRC is satisfied as your tax liability is settled on time.

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Contact us if you require further insights into how HMRC Loans function. Reach out to our team via our contact page, call us on 01494 956 871, or email us at [email protected].