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VAT Loans

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What are VAT Loans?

Most UK VAT registered companies will be obliged to make quarterly VAT payments to HMRC to settle their VAT liabilities from normal trading.

Due to seasonal variations in turnover, unexpected events, late payments from clients and other cashflow pressures, many businesses find the quarterly VAT deadline a particularly fraught period as they find themselves “robbing Peter to pay Paul” to ensure they can make their payment to HMRC and avoid the dreaded late payment VAT surcharges which can be as high as 15% of the VAT liability!.

Even if they manage to make the payment in time there is often a knock on effect on working capital elsewhere and the merry-go-round continues once again. We have worked with many Managing and Finance Directors of successful firms who have approached us, utterly drained by the whole exercise and wishing there were a better solution available to them.

UK VAT Return

Hence the VAT loan was created.

VAT Loans are an innovative, rapidly growing and extremely popular form of short term business funding that can sit perfectly alongside companies other business funding tools.

In its simplest form, a VAT loan is a three month term loan designed to be used by businesses to settle their quarterly VAT bill payments to HMRC on time, and allowing them the benefit of the additional cashflow headroom.

VAT Loans can be offered to firms with quarterly VAT liabilities from only £10,000 with no maximum limit – our largest VAT bill to date is £1M. They run for three months and rates start from around 1.25% per month, subject to underwriting and size of loan required.

VAT loans can often be unsecured, but when not, a director’s personal guarantee is the only security required.

The MacManus Finance VAT Loan Story

Before 2017 VAT loans were a largely unknown finance product, few funders offered them and hardly any brokers or businesses had even heard of them.

One day in 2017, one of our clients asked whether we could help provide a loan to help pay their VAT bill which was shortly due. They needed £700K.

After reviewing our funding panel we identified a lender that offered the product and sought about securing approval which we duly arranged.

We had never been asked for this lending before and assumed this was a one off request.

The following quarter the client returned and asked if we could help again, which we did. Again, no other customers were asking for the product so we didn’t see the potential demand.

Then, two months later, we met another client who told us about their challenges with HMRC over the previous few years.

They mentioned that over the previous 2 and a half years they had been a few days late paying each of their VAT quarters.

When the VAT inspection was eventually completed they were hit with a VAT surcharge bill of £30,000!………….. for EACH of the 10 late payments!! A total bill of £300,000 and they had 12 months to pay HMRC.

Due to hard work they managed to do it but it was a painful experience.

We had no idea this level of surcharge could be levied by HMRC and we were determined to do what we could to stop this happening to other businesses.

We wondered whether any of our other clients could be in the same position. A quick email to our top 100 clients immediately identified 10 who would use the facility immediately, and over the next 3 years this has grown to over 50 businesses that use our VAT loan for all or some of the VAT quarters each year.

By working closely with our customers we ensure the VAT loans are secured and agreed in good time and none have incurred any late payment surcharges as a result, and all have benefitted for the additional working capital this funding has provided.

Our goal is to become the VAT loan broker of choice for businesses across the UK.

VAT Loan Benefits

VAT Loans offers many benefits to UK businesses, including:

  • Cashflow Benefits – Without sufficient cash reserves, every business will eventually fail. VAT Loans provide an extra stream of funding that can be used in addition to bank overdraft or invoice finance facilities, without impacting on these existing facilities. This added stream can even out cashflow peaks and troughs. Not only that but the extra working capital available can be used to reduce costs elsewhere, and is available for other business growth or investment needs.
  • Cost Saving Benefits – Some businesses have found themselves in the painful position of incurring VAT late payment penalties (surcharges) from HMRC even when filing their payments a day or so late. Repeated late payments see an escalating penalty being applied and it can reach as high as 15% added to the VAT liability. When a business is in this position it can be very hard to break the cycle. By ensuring VAT is paid on time, every time, businesses already subject to surcharge can see an immediate reduction in costs, and other businesses can rest assured that they won’t find themselves running the risk of being in this position.
  • HMRC Relationship Benefits – having a great relationship with HMRC is very helpful if and when VAT and other tax inspections are undertaken. By ensuring that VAT is paid on time HMRC can build a picture of a properly managed and well run company that settles its affairs in a timely manner.
  • Peace of Mind Benefits – with so many things pulling at the focus of a business owner there is alot to be said for having order and structure in place in as many business areas as possible. By ensuring that a VAT loan facility is always in place a business owner has one less thing to worry about and can be confident that VAT will be paid on time, costs are more evenly spread and cashflow is being maximised.
  • Security Benefits – most forms of lending require some form of security offered by the borrower to the lender. Overdrafts, for example, will typically require the business to offer a debenture over all business assets to their bank. Sometimes this can extend to charges over directors’ homes. Security in VAT Loans, on the other hand, is often offered entirely unsecured and where security is required it is only in the form of an unsupported directors personal guarantee, meaning no charges against any property are sought or requested. Most business owners, confident in their business trading for at least the next 3 months, have no concern about offering guarantees in these short term circumstances.

Types of VAT Loan we offer

The two main forms of VAT loan are a Full VAT Loan or a Partial VAT Loan

Full VAT Loan

  • A three month VAT loan is sough to cover the exact, to the penny, quarterly VAT liability of a business.
  • A copy of the completed VAT return is provided to the funder and once agreed the finance documents are prepared for the precise amount
  • In most cases HMRC is settled directly by the funder on or just before the VAT deadline day.
  • Funds can be paid to the business directly, for onward payment to HMRC, subject to lender approval.
  • Or the business can pay HMRC directly in full in the first instance and then have the VAT payment refinanced a day or so later, subject to proof of payment from the business to HMRC being received by the funder.
  • The business then repays the loan plus interest in three instalments over roughly the next 30, 60 and 90 days.

Partial VAT Loan

  • Sometimes businesses may only want to fund a part of their VAT liability and don’t require funding for the full amount – the partial VAT Loan is perfect for this situation.
  • The underwriting process is exactly the same as for the full VAT Loan however a specific amount is requested, rather than the full VAT liability.
  • As only some of the VAT will be funded by the finance company, the business customer must ensure that the balance is paid to HMRC by the deadline to avoid incurring any surcharges.
  • Another form of the partial VAT Loan is the 1+2 payment profile, which involves the business customer paying the first installment up front, and making two further payments on 30 and 60 days respectively. This still provides the bulk of cashflow benefit to the business customer and ensures no VAT surcharges are incurred, whilst reducing the overall interest cost.

Why choose MacManus Finance for VAT Loans?

UK firms are well advised to engage the service of a skilled independent brokerage who can save them time and money by accessing the widest panel of options, who are Authorised and Regulated by the Financial Conduct Authority and are full members of the National Association of Commercial Finance Brokers trade association, as membership of both requires firms to demonstrate the highest standards of integrity and submit to consistent monitoring of activities, providing the business owner with confidence in the firm they have chosen to work with.

MacManus Asset Finance are one such firm – directly authorised by the Financial Conduct Authority, full members of the National Association of Commercial Finance Brokers, and with a customer base of almost 300 UK businesses whom we have supported for over 15 years.

This credibility combined with an extensive panel of finance providers, including some of the best priced, and most flexible lenders in the marketplace provides a winning combination.

Our business motto is “Never Just a Number” – and we take pride that our clients never feel like they are just a number to us, as so many business owners are made to feel by larger financial institutions.

Your business success is our business success, we never take our clients for granted, and will always aim to deliver more than our clients expect.

How to apply for VAT Loans with MacManus Finance

We make your VAT Loan journey as simple as possible.

From your first call, email or completed webform we will act as your trusted partner, understanding your objectives and putting together options for you to consider.

We may need to ask you some general business questions and ask for some financial information from you in order to carefully prepare your personalised quotation from our funding panel.

Once you have reviewed your no obligation quotations and are happy to proceed we will prepare your application and liaise with the lenders to secure the funding you need.

Once agreed we will notify you and then liaise with you to prepare your finance agreement for signing.

From here we ensure everything is finally packaged and presented to the finance company who will activate your agreement and HMRC directly, or subject to approval, to you, allowing you to enjoy the peace of mind that you won’t incur any late payment surcharges and have the added benefit of the additional working capital.

To begin please call 01443 800621, email info@macmanus.finance or complete the webform below.