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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 bill for the quarter ending 31 March 2021:||£60,000|
|Interest for the 3-month loan period:||£3,663.21|
|Total fee repayable:||£63,778.2|
VAT loans can work in two ways:
A VAT loan can be used as part of your cash flow strategy and it’s possible to take out concurrent loans, so that you pay your VAT off in equal monthly instalments each month. Our long-standing law firm client uses VAT loans to improve their cash flow – find out how.
If you’re concerned about paying your quarterly VAT return once the government’s VAT deferral scheme comes to an end, please get in touch with us to discuss how a VAT loan could help your business to get ‘cash flow fit.’