It is your legal obligation to pay your VAT bill. However, your business may not be ready in time, which could raise substantial penalties and legal complications. A VAT loan is a helpful solution for companies in this situation.
It would be best to keep an eye on the deadline to ensure you do not miss it, as this could incur a fine. You will be able to find this deadline on your VAT return or use this VAT payment deadline calculator.
A VAT loan is financing extended to businesses to help them cover their VAT bill without interfering with their cash flow. The broker will send the funds directly to the HMRC on behalf of the business. Cash flow is necessary to cover both the usual and unexpected business expenses. It would be risky for a business to use its own funds to settle the VAT bill. Doing so could harm the firm's working capital and leave it without cash flow for other necessary expenses.
To understand a VAT bill, you need to understand the VAT registration process. When a small business is new, it is under no obligation to pay VAT. However, as it grows, it'll reach a threshold where it is expected to be submitting VAT returns. The law sets that threshold at £85,000 turnover. Once your business is performing above that point, you are legally obliged to be filling those VAT returns. VAT registration effectively makes you a tax collector. You'll be charging customers tax on their purchases, then later submitting those sums to the HMRC. Instead of charging customers the tax and then directly submitting it to the HMRC, the business will collect those taxes and file a VAT return.
The amount that reflects on the VAT bill depends on the tax you paid for your business purchases and the amount you charged customers for their purchases from your business. There is a balancing effect when you factor in both sides. For example, if you collect more tax from your customers than you paid on your purchases, you'll owe the HMRC the difference. Conversely, HMRC would owe you the difference if you paid more taxes on your investments than you collected from your customers.
A typical period for filing a VAT return is quarterly. Once filled, you have around five weeks to settle that bill once you have filed the returns. The authority may even assume the business is operating while insolvent and move to prevent further tax liabilities. Failure to pay a VAT bill on time will have severe repercussions from the HMRC. To avoid such action and additional penalties, you need to find a way to settle the VAT bill in time.
Businesses turn to VAT loans if they cannot raise the amount necessary to settle the VAT bill or if they wish to keep the money for other business expenses. The loan is paid directly to the HMRC, saving you the hassle and leaving your business trouble-free.
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It is a known fact that cash flow is one of the most critical things within a business. Preserving your cash flow is essential as a business owner. You never know when you might need to make unexpected payments. The best thing to do for your business is keep profits within it, as this allows you to pay labour costs, pay bills, buy tools, pay rent, and any other expense your business may need. You prevent your business from losing this valuable tool in its operations through a VAT loan.
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A VAT bill is usually a substantial amount. While you'll get the VAT loan with interest, the periodic payments in the VAT funding arrangement are more manageable for your business than a lump-sum deduction.
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VAT loans are accessible for businesses in manufacturing, agriculture, consultancies, construction, real estate, IT, and much more. Eligibility for a VAT loan depends on several factors, some already mentioned:
• Your business has to be VAT registered
• The business needs to have a turnover of not less than £85,000
• It has to be a business within the UK
• The business should be a limited liability company, although some partnerships and sole proprietors may qualify
• You need to have been in business for more than a year
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A VAT bill comes with certain legal and financial obligations, making it a disadvantage to your business to delay paying. Since the amounts involved are usually significant, you may have to seek a funding solution to manage the payment. A VAT loan is ideal for preserving your business cash flow status and works well if used responsibly.
