Many UK business owners dread that time every quarter when the VAT bill falls due. It’s that lump sum of money which for many companies has aided cash flow in the previous three months and now needs to be turned over to HMRC. Ironically, for many companies, the more VAT you pay to HMRC, the better your business is doing. Below are Top 10 Tips for VAT business loans and funding:
Keep cash aside in a separate bank account to cover HMRC tax payments
It’s such a simple idea why does not every company do it? Every month work out what VAT and Corporation Tax needs to be paid and save the money in a separate bank account.
Business owners say they “have put money aside” but few if any hold a separate tax bank account.
So rather than this being a tip, our tip is to calculate your monthly VAT payment and keep a running total of what cash you need to pay the VAT bill.
Pay HMRC every month
Now this is a much better idea. HMRC run different bank accounts for PAYE and VAT. There is nothing stopping you working out your monthly VAT owing and then sending HMRC a bank transfer every month. There are some great benefits to this, and the only downside is the loss of interest you would have had on holding the money.
Submit your VAT return as quickly as possible
If you are looking for a VAT reclaim, then it is important – for your cash flow – to submit the VAT return as quickly as possible.
If you have to pay VAT over, then there is nothing stopping you completing the return ASAP as well. Regardless as to when the return goes in, you still have one month and 7 days to pay the money from the date of your quarter end.
The VAT bill will have to be paid. Understanding exactly what your VAT bill is early on helps you plan how you will pay it.
Borrowing money is cheaper than paying a HMRC fine
HMRC VAT late payment fines and rates are clearly documented on the www.gov.uk website. Those brown envelopes – which arrive through the letter box of thousands of companies every month – always have the sting in the tail of the fine, up to 15% of your VAT liability.
Taking out a loan, is usually significantly cheaper than paying a fine.
Think about when you raise a sales invoice
We tend to stop raising sales invoices of any significant value at the end of a VAT quarter. We delay these invoices for a week or so, hence pushing forward the VAT element for a further three months.
Always pay HMRC some money
If you do not have the money to pay the bill, then this will incur a fine from HMRC. It will start a process most of us would prefer not to go through. Pay them something, show willingness. It will not change a fine but may help when it comes to how HMRC deal with your case.
If you do decide to go down this route, tell HMRC as soon as possible what is going on.
Do not use your bank for a short-term business overdraft or overdraft extension.
High Street banks will often charge a 1% fee for arranging an overdraft even if the need is only for 30 days. Leaving that aside, you need to understand how often your bank can aid you with an informal overdraft. HSBC for example, limit some companies to only four overdraft extensions per year.
Use a specialist VAT loan funder for part or all the VAT debt
If you owe HMRC £50,000 in VAT and have £25,000 spare, just look for a £25,000 VAT business loan over three months. You do not need to fund the full amount.
Do not go to your normal sources of finance
Keep your bank, your friends/family and other finance providers facilities available for other business loans and funding. As soon as you start using an existing contact for a VAT business loan, they cannot be used for other requirements you might have.
Start the process of getting a VAT business loan today!
We look to get our customers credit approved within 24 hours and paperwork can be emailed over very quickly. We have instances where from an initial VAT business loan conversation to having HMRC being paid by clear funds takes less than four days.
It’s always best to get the credit acceptance in place and paperwork signed. Even if you sign the document a month early, the payment will be delayed until nearer the due date. Hence pushing back the first repayment date.
For more information on top 10 tips for VAT business loans and funding or for a free no obligation quote, please give a member of the VAT Loans team a call on 01494 956 871 or email us on [email protected].