Ah, tax season – everyone’s favourite time of year, right? The joy of crunching numbers, the excitement of HMRC deadlines looming ever closer… Okay, maybe not. For most businesses, tax time can be a real cashflow killer. But what if there was a way to get ahead of the game and avoid the scramble? Enter tax funding, the unsung hero of working capital solutions.

Whether it’s VAT, corporation tax, or even R&D tax credits, tax funding gives businesses the flexibility to manage their tax bills without wreaking havoc on their cashflow. Let’s dive into the different types of tax funding available and why they might just be the answer to your tax-time woes.

1. VAT loans

VAT – it’s one of those unavoidable costs that likes to pop up quarterly and give your cashflow a nice little shock. But rather than scrambling to pull together enough cash to pay that bill on time, you could opt for a VAT loan instead. These short-term loans are designed specifically to cover your VAT liabilities, letting you meet your obligations without draining your bank account.

Here’s the beauty of it: you don’t have to repay it all in one go. With VAT loans, you spread the cost over the following quarter, usually in two or three manageable payments​. So, when HMRC comes knocking, you’re ready, and your cashflow stays intact.

Example:
Let’s say your VAT bill is £30,000. Instead of paying that lump sum straight away, you take out a VAT loan. You can now split it into 3 payments of £10,000 over the next few months. No drama, no stress, and your business can keep running smoothly.

2. VAT bridging finance – for those larger VAT headaches

If VAT loans are the sticking plaster for your typical VAT payments, VAT bridging finance is like bringing in the heavy artillery. This is particularly handy for businesses involved in property transactions, where VAT can be a significant cost that you’ll eventually reclaim – but until then, you’ve got a big, VAT-shaped hole in your cashflow.

With VAT bridging finance, the lender steps in to cover the VAT liability upfront, so you don’t have to. Once you’ve reclaimed the VAT, you use those funds to pay back the lender​. It’s a straightforward way to smooth out the bumps in big property deals and make sure your cashflow doesn’t take a hit.

Example:
Picture this – you’re buying a commercial property, and the VAT liability is £100,000. Rather than coughing that up and waiting months to reclaim it, you secure VAT bridging finance. The lender covers the VAT, you get the property, and when HMRC processes your reclaim, you repay the lender. Cashflow crisis averted.

3. R&D tax credit advances 

We all know R&D (research and development) can be a big win for businesses – both for innovation and for those sweet tax credits. But the problem with tax credits? You’ve got to wait for them to roll in. And if you’re investing heavily in R&D, waiting isn’t always an option.

Enter the R&D tax credit advance. This handy funding solution gives you an advance on your expected tax credit, so you don’t have to wait for HMRC to approve your claim. You get the cash upfront to cover your expenses, and once the tax credit is paid out, you repay the advance​. It’s a neat little way to keep the wheels turning while you wait for the taxman to play catch-up.

Example:
Your business is expecting a £50,000 R&D tax credit, but you need the cash now to continue your projects. By securing an R&D tax credit advance, you get a chunk of that money upfront, keeping your R&D efforts on track and your cashflow healthy.

4. Corporation tax funding

Corporation tax – the tax we all love to hate. While paying it is a sign your business is doing well (profits, yay!), it can still be a bit of a kick in the teeth when that bill lands. But what if, instead of forking over a huge lump sum, you could spread the cost over the year?

That’s where corporation tax loans come in. These are designed to help you manage your corporation tax payments without wiping out your cashflow. You can spread the payments over 12 months (or less), which is a huge relief if your business experiences seasonal fluctuations or has irregular revenue streams​.

Example:
Your corporation tax bill is £60,000, due next month. Rather than draining your account in one go, you take out a corporation tax loan and spread the cost over 12 months. That’s £5,000 per month, which feels a lot more manageable – and your cashflow remains in good shape.

Let’s face it, tax bills aren’t going anywhere. But with the right tax funding solution, you can manage your obligations without putting a strain on your cashflow. Whether you’re dealing with VAT, corporation tax, or waiting on R&D tax credits, there’s a funding option that can take the pressure off and keep your business running smoothly. Get in touch with our team to discuss any of the above, or your unique tax challenge.