VAT Loans and Corporation Tax Funding: Spreading Tax Bills in 2026
Every quarter, the same squeeze. The VAT bill lands whether it's been a good three months or not, and the money set aside for it has a habit of getting used by the business in the meantime. Corporation tax does the same thing on an annual scale, nine months after year end, often just when you've committed to something else.
Tax funding turns those lump sums into monthly payments. It's one of the fastest-growing corners of UK business finance, partly because it's quick, and partly because leaving HMRC unpaid has become genuinely expensive. Here's how it works and how it compares to HMRC's own Time to Pay arrangements.
How Tax Funding Works
The lender pays your tax bill, either to HMRC directly or into your account for immediate payment, and you repay in fixed monthly instalments. As a general guide across the market:
- VAT loans: usually repaid over 3 months, clearing before the next quarter's bill arrives
- Corporation tax loans: typically spread over 6 to 12 months
- Decisions: commonly 24 to 72 hours, with some lenders faster on smaller amounts
- Also fundable: PAYE and self assessment liabilities, depending on the lender
These are general guides, not quotes. Every facility is subject to status and the lender's own checks.
Why Leaving HMRC Unpaid Got Expensive
Since April 2025, HMRC's late payment interest has been set at base rate plus 4 percentage points. With base at 3.75%, that puts it at 7.75% a year as of January 2026, and it runs from the first day a payment is overdue. VAT carries separate late payment penalties on top that step up the longer the bill sits.
There's a quieter cost too. Missed tax payments can affect how lenders view your business for years: it's one of the first things underwriters look for on bank statements. Businesses that fund their tax bills often do it less because they can't pay and more because they'd rather keep their cash working, their HMRC record clean, and their borrowing options open.
Tax Loan vs HMRC Time to Pay
HMRC's Time to Pay scheme is the alternative every business owner should know exists. It's an arrangement made directly with HMRC to spread a tax debt, typically over 3 to 12 months, and there's no lender involved. The honest comparison:
- Time to Pay: no arrangement fees, but interest normally continues to accrue at HMRC's late payment rate, agreement is at HMRC's discretion, and the debt sits on your HMRC record while it runs
- Tax loan: HMRC is paid in full and on time, the cost is fixed and known up front, and the repayment schedule is contractual rather than discretionary. You're paying a lender's interest instead of HMRC's
Neither is automatically better. Which one suits a given business depends on its cash flow, its relationship with HMRC and the total cost of each route, and it's worth talking both through with your accountant before deciding.
Tax bill on the horizon?
Tell us the amount and the due date and we'll put your case to the tax funding lenders on our panel. Decisions typically inside 72 hours, every cost in plain English, free to use.
Check your optionsWhat It Costs
Pricing depends on your accounts, how long you spread the bill, and the lender. Because terms are short, the pound cost is often more modest than the headline rate suggests: three months of interest on a quarterly VAT bill is a very different animal from a five year loan.
The comparison that matters is the same one we'd make on any product: total repayable in pounds versus the cost of the alternative, whether that's HMRC interest and penalties, or the opportunity cost of draining the cash you'd earmarked for stock, wages or growth. If the underlying issue is broader than one tax bill, a working capital facility might be the better shaped tool.
Common Questions
Does using a VAT loan flag anything to HMRC?
No. HMRC receives full payment on time, exactly as if you'd paid from your own account. The finance agreement is between your business and the lender.
Can I fund a bill that's already overdue?
Often yes, and stopping the interest and penalty clock is usually the motivation. Expect the lender to ask why it's overdue and to look a little harder at the accounts.
Is it secured?
VAT and tax loans are commonly unsecured, though personal guarantees from directors are frequently requested. As ever, understand exactly what you're signing: our personal guarantee guide covers it.
How fast can it complete?
Decisions typically land in 24 to 72 hours, and funding shortly after. If a deadline is days away, say so up front, because some lenders move much faster than others.
Keep your cash and keep HMRC happy
CapExpand introduces you to established tax funding lenders from our panel, with every cost explained before you commit to anything. Call us on 0333 041 3127 or start with the two-minute form.
Check your optionsCapExpand is a credit introducer, not a lender. We do not provide financial or tax advice, and nothing here is a recommendation. HMRC rates and rules change, figures correct at July 2026. All funding is subject to status and lender approval. Speak to your accountant about your tax position.
CapExpand Ltd (Company No. 14433858) is a commercial finance introducer, not a lender. We are not currently authorised or regulated by the Financial Conduct Authority and do not provide financial advice. All information on this page is for educational purposes only. Funding is subject to status and lender criteria. CapExpand will receive a commission from providers at no extra cost to you.