As we see the end of 2020 in sight (thank goodness), it’s more important than ever to keep an eye on cashflow for 2021, especially as the range of Government support schemes (CBILS, Furlough and deferred VAT loans) draw to an end. Cashflow is the lifeblood for any business and many business owners don’t know that a VAT loan could be a great way for you to keep cash in the bank at a relatively low cost.

Most VAT registered businesses will receive a bill for their VAT from HMRC quarterly. However, a VAT loan will allow you to pay off your VAT every month in three equal instalments. This will help you to keep cash in your business for longer.

A VAT loan is a short-term (ie: 3 month) loan and you are required to pay the capital plus the interest, as you would with any other loan.

If your VAT bill for the quarter ending 31 March 2021 is £60,000, a VAT loan will allow you to pay it back over three equal instalments of £21,000 each. The breakdown of how the loan and the interest payable works is shown below:

VAT loans can work in two ways:

1. The VAT loan is paid by the lender to HMRC directly and the customer repays the loan plus interest over 3 equal monthly instalments
2. The customer can present the VAT Statement that they have paid to HMRC and TVAF can arrange for a loan to reimburse the customer directly, allowing them to benefit from having the cash in their business.

Watch our short video about how VAT loans can help your business become cash-flow fit: