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Updated: 16th January 2020

Understanding Tax Loans

Dealing with tax payments can be difficult for any business given the potential for disruption to cash flow. Planning ahead financially for tax and VAT is vital, but even when you use regular cash flow projections it only takes a drop in sales or an unexpected expense at the most inopportune time to create a cash shortfall.

It is possible to regain control of the company’s financial situation and avoid going into arrears with HMRC, however, and you can do this by obtaining emergency finance - it protects the business from financial penalties, and potential creditor legal action.

Why use emergency finance for tax and VAT?

Failing to pay a VAT or tax bill is an emergency situation as it can be the start of a steep decline in financial health for your business. HMRC impose hefty penalties on companies that don’t pay their tax and VAT, and can also close businesses down quickly if they believe they’re insolvent.

It may be possible for your business to obtain emergency finance in the form of a tax loan if you can’t pay the tax bill, so what exactly are tax loans and how do they work?

What is a tax loan?

A tax loan is a form of emergency finance that helps businesses avoid problems with HMRC, and the considerable financial penalties that can be imposed. Essentially, they are short-term loans designed to deal with the specific issue of tax or VAT arrears.

If funding is sanctioned it can be paid directly to HMRC if necessary, so no time is wasted in meeting your company’s liability. A further benefit is that, once a tax loan has been granted, it’s generally paid within 24 hours.

"HMRC impose hefty penalties on companies that don’t pay their tax and VAT, and can also close businesses down quickly if they believe they’re insolvent"

Advantages of using emergency finance for tax and VAT

  • Avoids penalties from HMRC
  • Prevents the business developing a bad reputation with HMRC – a situation that can cause further problems if the company experiences financial distress at a later date
  • Tax loans are short-term commitments rather than a long-term drain on finances
  • This type of finance offers a speedy application process and fast transfer of funds once the loan has been agreed
  • Funds can be paid directly to HMRC to save time

Which lender would be best for your business?

With many different lenders offering emergency finance for tax and VAT, in addition to the urgent nature of the situation, it’s easy to feel rushed into choosing a provider simply to get the bill paid quickly.

This could lead to excessive charges or interest, however, or even ‘hidden’ costs that you hadn’t previously considered, so it pays to take professional advice when seeking funding of this type.

In addition to emergency tax loans, lenders also sometimes offer longer-term tax loan facilities that help you keep up with your liabilities throughout the year. This helps you maintain a steady and more predictable cash flow, and promotes business growth.

It may be worth taking a longer-term view with regard to tax payments, even if you decide to use emergency finance on this occasion. RBR Advisory can provide professional, reliable advice when seeking emergency funding for tax and VAT.

We are a major part of Begbies Traynor, the UK’s largest professional services consultancy, and will make sure you choose the most suitable lender for your business. Please contact one of our expert team to find out more - we offer free same-day consultations and operate an extensive network of offices nationwide so you’re never far from professional assistance.

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