What are VAT loans?
Value Added Tax (VAT) loans are a specific type of business loan that help businesses pay their quarterly VAT instalments – freeing up capital if they’re at a point of low cash flow or need the extra funds for an upcoming investment.
Why would a business need a VAT loan?
UK businesses with an annual turnover of just £90,000 are legally required to pay VAT – which means many small businesses face this quarterly bill. Not paying VAT on time will often result in a late payment fine and recovery action by HMRC.
This means that businesses with cash flow issues or seasonal fluctuations, and those facing unexpected expenses or planning an investment, can benefit from the flexibility offered by a VAT loan.
Registering for VAT
Read on to find out how to register for VAT or whether your business might be exempt.
Who is exempt from VAT?
Businesses earning over the £90,000 threshold are exempt from VAT for two main reasons – because they sell VAT-exempt goods or services, or because they’re classed as flat or zero-rated businesses.
If your business brings in less than £90,000 annually you won’t be legally required to register for VAT. You can choose to register voluntarily so you can reclaim VAT on any VAT-eligible goods and services you buy, cutting your overall costs.
VAT-exempt goods and services include:
- Financial services (e.g. insurance, credit, and loans)
- Medical services (e.g. doctors, dentists, opticians)
- Education and training (if provided by approved institutions)
- Charity fundraising events
- Memberships for certain organisations (similar to the rules on Education and Training)
However these businesses aren’t able to reclaim VAT on things like office supplies, rent, or advertising costs.
Zero-rated items include:
- Most food and drinks (but not alcohol, confectionery, or luxury items)
- Printed books, newspapers, and magazines
- Children’s clothing and footwear
- Public transport fares
If you’re a zero-rated business you won’t charge VAT, but you’ll still need to keep records and submit VAT returns. This will allow you to claim back VAT on your business’s purchases.
Read our full article on VAT exemptions to find out more.
How to register for VAT
You can register for VAT by post, but it’s more efficient to do so online at Gov.uk. Make sure to keep an eye on your earnings, as once you’ve passed the £90,000 threshold you’ll need to register for VAT within 30 days.
To register for VAT, you’ll need some information about your business. This is:
- Your Company Registration Number (CRN)
- Your business bank account details (to verify your earnings)
- Your Unique Taxpayer Reference (UTR)
- Details of your annual turnover (e.g., sector, type of business)
Find out more about registering and paying VAT with our full guide on VAT registration.
FAQs
The most frequently asked questions about VAT loans.
VAT stands for Value Added Tax, and is a 20% tax added to the cost of goods and services.
You can register for VAT by post or at Gov.uk – registering online is much easier. Read our full guide for more information.
VAT registration can take up to 30 days upon registration. But the entire process might take longer depending on the complexity of your business, so make sure you have all the information mentioned above prepared.
You will receive your VAT certificate within 30 working days after completing the application.
VAT loans are generally unsecured, so security is not required in most cases.
Once your business has been approved for a VAT loan, the lender will pay the amount directly to HMRC. You will then need to pay back the lender the loaned amount plus the agreed interest in monthly instalments.
You can tailor the repayments to suit your business, but most loans are spread across a period of either three, six, nine, or twelve months.
Our initial application process takes just two minutes, and we’ll provide you with a range of options from different lenders. Lenders can give us an answer within 24 hours and sometimes can come back to us in two.
As we’ve mentioned, your lender will then pay the VAT you owe directly to HMRC. It’s important to allow plenty of time before the upcoming VAT deadline to apply for a loan, as late payment will result in a fine.
Getting a quote from us won’t impact your credit score.
Most lenders we work with only do soft credit searches, and although a small number may apply hard credit searches, we will help you navigate through this.
You’ll only need a full credit report once you proceed with a lender’s full application. We’ll reduce the number of credit searches you need by carefully determining your eligibility for each loan option.