How to avoid overdue VAT payments with a loan

Late VAT payments are becoming more common as more businesses experience some form of financial stress. But a VAT loan could help...

The surcharges and penalties for overdue VAT payments can cripple a business.

If your annual VAT bill is due soon, and you are struggling to collect the cash necessary to pay it, you may want to consider taking out a VAT loan to cover it.

A VAT loan is a borrowed sum of money used to pay a VAT bill. Taking out a loan of this type is legal and not uncommon. Many businesses struggle to pay their VAT bill.

The surcharges and penalties for missing a VAT payment due date, or not filing a VAT return at all, are costly. It makes no wonder then that VAT loans are so popular.

By taking out a VAT loan, you will have the funds you need to pay your VAT bill on time and overdue payments will not be an issue for you or your business.

VAT loan costs

The cost of a VAT loan is set by the lender. It is split into two parts:

  1. The amount you borrow
  2. The interest rate you pay

The interest rate you pay is typically expressed as an annual percentage of the loan outstanding. This is called an Annual Percentage Rate (APR). The lower this is, then the lower your total VAT loan cost will be over your term.


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Another important aspect of the VAT loan cost to consider is the Early Repayment Charge. This is set by the lender and is effectively a penalty set for early repayment. However, some lenders have done away with this charge altogether.

Nationwide Corporate Finance, for example, do not charge for early settlement on VAT loans. This means you can repay your VAT loan early without a penalty, which boosts flexibility considerably.

VAT surcharges and penalties

For businesses with an annual turnover of £150,000 or more, there is a surcharge of 2%, 5% and 10% on the second, third and fourth defaults.

Of course, there are exceptions. If you pay your VAT in full on time by the due date, there is no surcharge even if you filed a late VAT return. There is also no surcharge if you have no tax to pay or if you are due a VAT repayment.

The penalties for errors in filing or incorrect assessment are even higher. HMRC can charge a penalty of 100% of any tax under-stated or over-claimed if you send a return that contains an inaccuracy. They can also charge you a penalty fee of up to 30% of an assessment if you do not notify them of an inaccuracy.

It certainly pays then to pay your VAT bill on time and in full. If you are struggling to collect cash for it, consider a VAT loan to avoid overdue payments.