Tax funding

Why finance companies lend for VAT/Corporation Tax funding

VAT and Corporation Tax funding

VAT and Corporation tax funding is fundamental for many businesses. This is why finance companies, the lenders really like this business.

  • The loans are short term. Most last three or six months for VAT and up to one year for Corporation Tax.
  • Historically, the covenant of the underlying customer has been ‘high quality’ consisting mainly of what we refer to as the “professional” sector (i.e. accountants, solicitors, and architects).
  • The loan principle is paid directly to HMRC. Therefore, this removes potential element of the loan being used for any other purpose (or fraud). This occasionally does occur within leasing and asset finance.
  • The interest rate can be higher, relative to longer term financing over two to five years.
  • There is a high customer retention rate, with many companies using this loan facility two, three, or four times every year.
  • There is one large downside for these funders – the amount of profit they make on each deal. As the loans are all short term, even if they charge a 6-10% interest rate, the amount of money they make in interest is relatively small. Consequently, they can make money only by having an automated system and hoping for a high rate of repeat business.

Amount being lent to finance VAT or Corporation Tax

We do not know the exact amount that is being lent every year to finance VAT or Corporation Tax.  However, we estimate it is north of £250m. Two of the UK’s larger players in this sector probably do around £160m to £200m between them. So, the actual market total could be much higher.

However, we expect the funding for this market to increase significantly as we offer VAT and Corporation Tax bill finance for normal SME companies. With over 2 million companies in the UK, it potentially could be a £1 billion per year lending business. Many thousands of these companies are paying their HMRC tax bills late, with all the fines and aggravation that goes with that. Our service could help them better manage their tax bill and avoid the steep late fees and fines.

Jeremy Hall, CEO of VAT Loans noted, “We can see this business being very big, very quickly. For us, our journey with a client starts with the first deal. Companies often do not buy assets four times every year, other than vehicles. This product will allow us to interact with many hundreds of businesses we otherwise would not have had a relationship with.”

Contact Us

Do you want to learn more about how tax funding can benefit your business? Give us a call on 01494 956 871, or send an email to [email protected].