VAT and Corporation Tax funding for companies is nothing new. As a multi-million-pound business in the UK, there are thousands of solicitors, accountants and architects already using this service. However, this “funding” product has not found its way into the mainstream for SMEs that make up the heart of British business.
How can these small and medium sized companies, and even larger ones if required, fund their VAT and Corporation Tax?
The first option could be a bank loan. Plenty has been written about why banks are not lending. The time it takes to apply for a bank loan, or the fees associated with it.
Second are Peer to Peer lenders and other specialist companies that will loan a business money. They will always ask for a personal guarantee. You may even find your details in the public domain, as they post your details on a portal raising money from the public at large. Whilst this can be an option, it is not always the simplest and quickest solution for your company.
Logic dictates that most companies who are running an accounting system will know at any time what their VAT liability is. Hence, they should have no need to borrow to finance an HMRC bill. The reality proves that this assumption is not the case for several reasons we will highlight later.
So, why do companies look to fund their VAT and Corporation Tax liability?
Companies will often set aside their VAT / Tax money with the intention of paying it on the last day possible. Funding this money instead allows you to invest in other projects without having to speak to your bank.
Clients sometimes find themselves in a position where they have raised a sales invoice but not yet received the corresponding purchase invoice from a supplier. This can artificially increase their VAT liability for a quarter.
Many accountants and solicitors find themselves raising invoices for work completed, but then must wait a long time to be paid. Many other types of companies also find themselves in this same situation.
With regards to Corporation Tax, sometimes the bill bears no resemblance to the actual cash position of the company. Especially since the bill becomes due nine months after the year end. Spreading the payment over the next year can be highly beneficial.
Loans are available from £8,000 and can be repaid over three to twelve months. You can pay the first direct debit immediately. Or you can choose to delay it until one month after HMRC have been paid.