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How VAT loans can help you manage your VAT payments

VAT Payments


In the European Union, goods and services that are sold and bought by customers for consumption come with Value Added Tax or VAT. The same goes for imports.

 

Export products and services, on the other hand, are not subject to VAT. This regulation is for the sole purpose of fair competition in the European market among all suppliers inside or outside the Union. 

 

Companies must be VAT registered if they have an annual turnover of £85,000 or more.

 

This means a VAT registered business is required by law to submit a VAT return every quarter. As a result, companies face common dilemmas such as how they can afford the VAT bill, where to get the funds, and whether they can pay on time.



Using VAT Loans to Pay Your VAT Bill


You can apply for [VAT Finance] if you can’t pay your VAT on time, so you don’t incur late payments penalties.


The HMRC, which is responsible for collecting taxes, charges businesses up to 15% of the total value of the VAT bill for any late or non-payment instances.


This cost alone can increase your accounts payable, in addition to any current expenses your company is already liable for. 


It is common for companies to fall behind with VAT payments for a range of reasons


With VAT Finance, you can avoid these potential challenges. VAT Finance can serve as a solution to pay your VAT bills on time while you’re still managing your expenditure.


Benefits of VAT Finance


Loans allow you manage your cash flow more effectively and use existing funds in other areas of your organisation instead of using it to pay for hefty late payment penalties. 


There are VAT lenders that can approve your loan application in as little as 24 hours, which is perfect for a time-sensitive matter.


If you are already past your due date, you can still find facilities that can finance your VAT bill up to 14 days after the payment due date. 


Managing VAT payments


Although taking up a VAT loan is an enormous help in paying off your bill, it’s still important to save up and include VAT payments in your company budget. A VAT loan may enable you to pay your VAT bill, but keep in mind that you are still obliged to pay off the loan. It can be challenging to regulate your cash flow when you have many bills to pay.


Frequently Asked Questions

What happens if you can't afford your VAT bill?


If you are unable to pay your VAT bill you are at risk of incurring late payment penalties of up to 15% of the total amount you owe. In some cases you may be able to arrange a [Time to Pay] (TTP) agreement.


TTP is not available to everyone. It is only possible if you can prove you do not have the required funds to pay your bill when it is due or would have difficulty securing other finance, such as a [VAT loan].


It can be easier to arrange a TTP before the bill due date. So the more notice you give HMRC that you are unable to pay your bill the better.


TTP is not available to companies where a bill is a result of an enquiry or [compliance check].


TTP will;

  • Incur interest
  • Take longer to pay your bill
  • Increase the total cost of the bill
  • Effect cashflow

Can you negotiate VAT payments with HMRC?


It is possible to negotiate payments, however in recent years this has become increasingly difficult.


Many companies benefit from employing specialist services when negotiating with the HMRC due to the complex channels of communication and procedures that must be followed.

Making mistakes or not following the proper channels can have a negative effect on the success of your negotiations and result in HMRC demanding payments in full.



Can you delay a VAT payment?


If you delay paying your VAT bill or submitting your VAT return you will incur penalties and may enter into a 12 month surcharge period.


You will not have to pay a surcharge if you submit a late VAT return, BUT:

  • Pay your VAT in full by the deadline
  • Have no VAT to pay
  • Are due a VAT repayment

What is the penalty for paying VAT late?


Defaults within 12 months | Surcharge if annual turnover < £150,000 | Surcharge if annual turnover > £150,000
2nd No surcharge 2% (no surcharge if this is less than £400)
3rd 2% (no surcharge if this is less than £400) 5% (no surcharge if this is less than £400)
4th 5% (no surcharge if this is less than £400) 10% or £30 (whichever is more)
5th 10% or £30 (whichever is more) 15% or £30 (whichever is more)
6 or more 15% or £30 (whichever is more) 15% or £30 (whichever is more)


Who can borrow money to pay VAT bills?


Being able to borrow money for VAT bills is subject to a number of things. However the most common factors are credit status, any existing credit agreements and how long you have been trading. This information allows lenders to establish if you are able to afford the loan.


Loan Affordability is determined by;

  • Finance Facility Type
  • Funding Amount
  • Total Facility Cost
  • Financial status
  • Applicant(s) personal credit history
  • Existing loan agreements


Updated: November 22, 2019

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