VAT loans

A VAT loan pays your VAT bill to HMRC on the due date, and you repay the lender in monthly instalments over a few months. It avoids HMRC’s late payment penalties and interest, at the cost of the lender’s interest and fees. HMRC may also agree a Time to Pay arrangement, which charges interest but no loan fees.

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When VAT is due

A VAT return and the payment that goes with it are due one calendar month and seven days after the end of the VAT period. For a quarter ending 31 December, that is 7 February. The deadline applies even when it falls on a weekend or bank holiday, and the money has to have reached HMRC’s account by then, so allow for the time your payment method takes to clear.

Larger businesses pay more often. A business filing quarterly returns that owes more than £2.3 million in VAT in any period of twelve months or less has to make payments on account, due on the last working day of the second and third months of each quarter, with the balance paid with the return.

A VAT bill can arrive at a bad moment because VAT is charged on what you invoiced in the quarter, whether or not your customers have paid you. A business with a big quarter of sales on 60-day terms can owe VAT on invoices it has not been paid for yet. That gap is where a VAT loan, or a change in how you account for VAT, comes in.

HMRC penalties and interest on late VAT

3%of the VAT still unpaid at day 15, charged when payment is 16 to 30 days late
3% + 10%a further 3% of the VAT unpaid at day 30, then a second penalty at 10% a year from day 31
7.75%a year late payment interest from the first day late, at base rate plus 4%, since 9 January 2026

Source: gov.uk, How late payment penalties work if you pay VAT late, and HMRC interest rates for late and early payments. Rules for VAT periods starting on or after 1 January 2023, at November 2026.

No late payment penalty applies if you pay within the first 15 days, but interest runs from the first day. Gov.uk’s own example: £15,000 paid 51 days late carries a first penalty of £900 and a second penalty of £86.30, before interest.

A VAT loan against paying late

Illustrative example

A £60,000 VAT bill. Either it is paid 51 days late with no arrangement in place, or a VAT loan pays it on the due date and is repaid over three months. The loan rate and fee are assumptions for the arithmetic: each lender sets its own.

Paid late: first penalty, 3% at day 15 plus 3% at day 30
£3,600.00
Paid late: second penalty, 10% a year for 21 days
£345.21
Paid late: interest at 7.75% for 51 days
£649.73
Paid late: total cost
£4,594.94
Loan: interest at an assumed 12% a year, three monthly repayments
£1,203.98
Loan: arrangement fee at an assumed 2%
£1,200.00
Loan: total cost
£2,403.98

The loan costs £2,190.96 less than paying 51 days late. A Time to Pay arrangement asked for by day 15, agreed by HMRC and kept, would carry no late payment penalty. Paying the £60,000 in three monthly instalments of £20,000 would cost about £775 in interest at 7.75%. Compare all three before you borrow, using the tax bill funding calculator.

A VAT loan or Time to Pay

VAT loanHMRC Time to Pay
What it costsThe lender’s interest and feesLate payment interest at base rate plus 4%, 7.75% since 9 January 2026
PenaltiesVAT is paid on the due date, so no penalty arisesNone if asked for by day 15 and agreed; the second penalty stops if agreed later
Who decidesThe lender, on your trading and credit recordHMRC, on whether the plan is affordable and realistic
What they may ask of youA personal guarantee from directorsThat directors put in personal funds, accept lending or extend credit
If you miss a paymentThe lender’s default terms applyThe arrangement can be cancelled and penalties charged as if it never existed

HMRC’s own guidance says that for a company in tax debt it may ask directors to accept lending, so a lender’s offer can be part of a Time to Pay conversation. More on Time to Pay arrangements with HMRC.

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What a VAT loan lender checks

A VAT loan is an unsecured business loan with a short term and a set purpose. The lender reads your filed accounts, your recent management figures, your bank statements and your VAT returns. It wants to see that the business is trading profitably and that the VAT bill is a timing problem: a big quarter, a slow customer, a one-off cost.

Lenders ask about arrears. If you already owe HMRC for earlier quarters, or have broken a Time to Pay arrangement, a lender will want to know how the business will keep up with future VAT bills while repaying the loan. Some lenders pay the loan straight to HMRC so they know the money went where it was meant to.

Expect to be asked for a personal guarantee from the directors. Read what a personal guarantee means for a director before you sign one. The funding search is for limited companies and LLPs, and for sole traders and partnerships borrowing more than £25,000.

Borrowing for VAT every quarter

A VAT loan for one difficult quarter is a sensible use of credit. A VAT loan every quarter means the business is spending VAT it collected on running costs, and each loan adds interest and fees to the next bill. Look at the cause before borrowing again.

If the cause is customers paying slowly, VAT cash accounting may help. Under the scheme you pay VAT on your sales when your customers pay you, and reclaim VAT on purchases when you pay your suppliers. You can join if your VAT taxable turnover is £1.35 million or less. If the cause is unpaid invoices more generally, invoice finance releases the cash tied up in them, VAT included.

If the cause is that VAT collected goes into the same account as everything else and gets spent, move it out each week. Transferring the VAT on each week’s sales into a separate account means the money is there on the due date. If the cause is that the business is losing money, a VAT loan adds to the losses: talk to your accountant about the business before borrowing for the tax.

VAT and tax bill funding calculator

The monthly payment and total cost of funding a VAT or corporation tax bill over a few months.

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Questions people ask

What is a VAT loan?

It is a short-term business loan used to pay a VAT bill to HMRC on the due date. You repay the lender in monthly instalments over a few months. It avoids HMRC’s late payment penalties and interest, and costs the lender’s interest and any arrangement fee. Some lenders pay the money directly to HMRC.

What happens if I pay my VAT late?

Late payment interest runs from the first day at base rate plus 4%, which is 7.75% a year since 9 January 2026. If the VAT is still unpaid at day 16, a first penalty of 3% of the amount unpaid at day 15 applies. At day 31 a further 3% is added on what is still unpaid at day 30, and a second penalty starts at 10% a year. This applies to VAT periods starting on or after 1 January 2023.

Is a VAT loan better than a Time to Pay arrangement?

It depends on the cost and the certainty. Time to Pay charges late payment interest and, if asked for by day 15 and agreed, no penalty, which can make it cheaper than a loan. But HMRC decides whether to agree, checks affordability, and may ask directors to put in funds or accept lending. A loan gives a fixed plan agreed with a lender. Price both before choosing.

Can I get a VAT loan if I already owe HMRC?

Some lenders will consider it, but they look closely at existing arrears and any broken Time to Pay arrangement. They want to see the business is profitable and that the arrears came from a timing problem that has passed. Be ready to explain the cause and show a cash flow forecast that covers both the loan repayments and your future VAT bills.

Can I pay VAT when my customers pay me?

Yes, under the VAT cash accounting scheme. You pay VAT on sales when your customers pay you and reclaim VAT on purchases when you pay your suppliers. You can join if your VAT taxable turnover is £1.35 million or less. It suits a business whose customers take weeks or months to pay.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

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A loan that pays your corporation tax bill on the due date and spreads it over several months.

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Can I get a Time to Pay arrangement with HM Revenue and Customs?

Who qualifies, the interest, what is asked for, and how it compares with a loan.

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Invoice finance

Borrowing against unpaid invoices, through factoring, discounting or single invoices.

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Working capital finance

How the trading cycle ties up cash, and which short-term finance fits each gap.

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Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

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