How VAT Finance can Help Seasonal Businesses Manage their Cash Flow

Corporate Office

The UK government is expected to receive a massive £187 billion from VAT this year. Introduced in 1972, VAT, originally charged at 10%, replaced Purchased Tax and is levied on most goods and services provided by registered businesses in the UK. Failure to pay VAT loans can result in costly late payment fines of up to 15% of your outstanding bill. 

Seasonal industries such as the hospitality, leisure, and tourist industries are particularly vulnerable when it comes to paying this type of tax bill, usually due quarterly, due to peaks and troughs in their earnings. Whilst businesses can claim back VAT on business expenses including goods and services, professional fees, fuel and travel expenses, and advertising and marketing, this isn’t always a quick process and it can take time to be reimbursed, leading to cashflow issues. This is especially difficult for seasonal businesses whose expenses continue even during the ‘off-season’.  

This sector was hit particularly hard during COVID-19, losing an estimated £115 billion in revenue, and the government agreed on a temporary rate of 5% VAT in 2020 as a concession for restaurants and food outlets, hotels, holiday accommodation, and some tourist attractions. The reduced rate was extended until 30th September 2021, later rising to a discounted 12.5% until 31st March 2022, before returning to today’s rate of 20%. 

Whilst hospitality businesses have bounced back relatively well since COVID-19 restrictions were lifted, the ongoing economic challenges, increased energy bills, labour recruitment and retention, and the continuing impact of Brexit on supply chains, are all impacting the profitability of the industry. 

Scott Monks, Enness Head of Corporate Finance commented, “Understanding and planning for these costs is essential and VAT finance is one of many solutions for those businesses struggling with cash flow to explore”.  

How does VAT finance work? 

Taking out a traditional term business loan to cover your VAT liability doesn’t always make sense, given you’ll often only need a temporary solution until you’re reimbursed by HMRC. VAT finance offers a short-term, simple solution that can be used to pay the quarterly VAT bill of a VAT-registered business. The good news is that there are relatively few restrictions on the businesses that can access this type of funding, as long as your business is in good financial standing, has a good credit history, solid income, and cash flow projections that support borrowing. 

Making an application for a VAT loan is a fairly quick process and decisions are usually made within 48 working hours, with the funds released in a matter of days, once accepted. You’ll need to supply some documentation with your application which may include your VAT return, information about the company directors, business bank statements, and company accounts.  

If approved, the lender directly pays the borrowed sum to HMRC to cover the outstanding VAT amount. The business then repays the lender in monthly installments over a specified period; usually 1 - 3 months. At Enness Global, we offer an alternative repayment option whereby you can repay your lender once you’re refunded by HMRC at the quarter end, minus any fees and interest. 

VAT finance is usually granted one quarter at a time; however, it may be possible for additional lending to be secured. In some cases, a VAT loan may be made available on a revolving drawdown basis. This means the business can call upon the lender quickly and on an ongoing basis. 

What are the benefits of VAT finance for my business?  

VAT finance helps relieve the pressure of making large payments to HMRC that would significantly impact your cash reserves or any income you may need for the operations or day-to-day running of your business.  

As well as the obvious benefits of being able to spread the cost monthly, and avoid a late payment charge from HMRC, there are some other benefits to consider: 

Mitigates Seasonality 

By taking out a VAT loan, businesses can free up extra liquidity which can be used to respond to fluctuations in revenue or increasing costs, for example, higher expenses during seasonal peaks or to manage lower income periods during seasonal lows.  

Regulates Cash Flow 

It can help streamline your cash flow because instead of paying a lump sum for your quarterly VAT bill, you can spread the cost. This offers consistency which allows you to better manage your finances, making it easier to allocate funds for other business needs such as expenses, payroll, or unexpected maintenance bills, or to mitigate unpaid invoices from clients. 

Allows Further Investment 

By freeing up cash flow, you can invest in other areas of your business. Whether it’s expanding operations, repairs or refurbishment, additional marketing, better processes or systems, purchasing equipment, or implementing sustainable practices, these funds can help you grow your business and become more profitable in the long term.

This type of finance can also help you with business expansion. If you plan to buy a new commercial property, you may be subject to a one-off VAT bill, leaving you with restricted funds for other business-critical investments. 

How can I arrange VAT finance for my business? 

A specialist business loan broker can help you determine if VAT finance is the most suitable form of finance for your business, by taking a holistic look at your circumstances and requirements. They’ll understand the documentation required to apply, and how to present this in the right way to maximise your chances of being approved, as well as act as a liaison with lenders to ensure the process runs smoothly. 

Be aware that most lenders in the VAT finance space specialise in smaller lending for SMEs and therefore it can be more difficult to secure a higher value loan. Enness Global are expert negotiators of high value VAT finance, with access to a multitude of specialist lenders, familiar with dealing with the needs of high net worth individuals and large lending.  

To discuss VAT finance of over £50,000, and how it could benefit your business, contact Scott Monks at [email protected]


The views and opinions expressed in this piece are those of the author and do not constitute advice or a recommendation. They do not necessarily reflect the official policy or position of Enness and are not intended to indicate any market or industry viewpoints, or those of other industry professionals.