Tax and VAT funding
What is a VAT loan?
By Chris Findlow · 23 August 2026
A VAT loan is short-term business funding used to pay a VAT bill to HMRC. Rather than settling the full amount in one payment, the lender pays HMRC and you repay in monthly instalments, usually spread across the following quarter.
A VAT loan spreads a VAT bill across monthly payments instead of one large outflow. The lender settles the bill with HMRC, usually paying them directly, and you repay over the following months.
The same structure covers other liabilities, so you will also see it called a tax loan, VAT funding, corporation tax funding or business tax finance.
Why businesses use one
VAT lands on a fixed date whether or not your customers have paid you. A company can be perfectly profitable and still find a quarterly bill arriving in the same month as a stock order and a payroll run.
Spreading it keeps working capital in the business through the quarter. For a company that could pay but would rather not do it in one lump, that is a legitimate commercial decision rather than a distress signal.
Be honest about what it is
This is borrowing to pay a bill you already owe. It buys timing, not capacity. It does not make the liability smaller, and it adds a cost on top.
Used deliberately once or twice, it is a sensible cash flow tool. Rolled every single quarter with the gap widening each time, it is masking a problem that funding will not fix.
Check Time to Pay first
Most pages selling VAT funding do not mention this, so here it is: HMRC Time to Pay is often cheaper.
It is HMRC’s own instalment arrangement. There is no arrangement fee, and HMRC’s late payment interest is frequently below commercial lending rates. If cost is your only consideration, start there.
Where commercial funding wins is certainty. Time to Pay is granted at HMRC’s discretion, so you cannot plan around it, and it is recorded as a payment arrangement. A tax loan is agreed in advance on terms you know, and the bill is settled in full on the due date.
If tax is a recurring pinch point
Consider a revolving credit facility instead. It is arranged once and drawn whenever you need it, so you are not applying afresh every quarter, and you pay interest only on what you draw.
Speak to your accountant before deciding. This is general guidance, not tax advice.
Written by
Chris Findlow
Director, FundingLinks
Director at FundingLinks with over 15 years across commercial lending, invoice finance and fintech partnerships, including senior leadership roles at Kriya. He works directly with SMEs to match them to the right lender across the whole market.
View LinkedIn profileFollow us in Google
Add FundingLinks as a preferred source and our articles show up more often when you search on Google.
