VAT Loan UK 2026
A VAT loan is a short-term business loan used to pay a quarterly VAT bill to HMRC, then repaid over the following months with interest. It is a normal business loan with a VAT label, so the amount, term and rate depend on the lender and your business. If you sell to other businesses on credit, invoice finance can be another way to have the cash ready. If you cannot pay at all, you can ask HMRC for a payment plan.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam was managing director of Penny, a UK invoice finance business, from July 2020 to November 2023. His career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library. Career record.
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When a VAT loan can make sense
- You sell to the public. With no invoices to other businesses, invoice finance does not apply.
- A one-off big quarter. A strong quarter can leave a large VAT bill. A loan spreads the cost over a few months.
- You want to keep your overdraft free. A separate loan keeps the VAT bill apart from day-to-day spending.
How invoice finance can help with VAT
Your invoices include VAT, and invoice finance pays you a share of the full invoice, VAT included, soon after you raise it. So part of the VAT is in your bank before your customer pays. Not all of it: the lender holds back part of each invoice until the customer pays.
A made-up example: a £12,000 invoice (£10,000 plus £2,000 VAT) with an 85% advance gives you £10,200 now. The other £1,800 comes when the customer pays, less fees. The 85% is for illustration only; each lender sets its own advance.
This helps if waiting for customers is the reason VAT is hard to pay. It is an ongoing facility, not a one-off loan, so compare the yearly cost with the cost of a loan using real quotes.
Paying HMRC in instalments
If you cannot pay a tax bill in full, GOV.UK says you may be able to set up a payment plan with HMRC. HMRC checks whether the plan is affordable, and if you cannot agree one, it will ask for the full amount. HMRC charges interest on tax paid late. For VAT, late payment interest is the Bank of England base rate plus 4%, which is 8% with base rate at 4% (HMRC interest rates, read 14 October 2026).
Side by side
| VAT loan | Invoice finance | HMRC payment plan | |
|---|---|---|---|
| What it is | A loan you repay in instalments | Money paid against your unpaid invoices, VAT included | An agreement to pay HMRC what you owe in instalments |
| What you pay | Interest and any fees set by the lender | Fees and a discount charge set by the lender | HMRC late payment interest (8% for VAT now) |
| Who it suits | Businesses with a one-off VAT gap, including those that sell to the public | Businesses that invoice other businesses and wait to be paid | Businesses that cannot pay the bill in full |
Where to get a VAT loan
Many business lenders will lend for a VAT bill, including online lenders such as iwoca and Funding Circle and the main banks. Check whether a quoted rate is per month or per year, and ask for the total you will repay.
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