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What is VAT deferral and how can it help my business? 

Business Finance

What is VAT deferral and how can it help my business? 

Updated: 13 November 2023

If you’re looking to purchase a commercial vehicle, manufacturing equipment, plant or industrial machinery, deferring the VAT on these items can help to take pressure off your cash flow and keep your monthly finances in order. Here’s how it works and how it could benefit your business. 

What is VAT deferral? 

When businesses use asset finance to fund a new commercial vehicle, piece of equipment or machinery, they will typically pay for their asset in monthly instalments over a set period of time. However, when securing finance for assets, for example, with a hire purchase agreement, the VAT usually needs to be paid upfront. While the VAT can be recovered later down the line, in the short-term this can have a big impact on your cash flow, leaving you with less to spend on other expenses. 

In a bid to overcome this, some asset finance providers offer VAT deferral to give businesses a longer time frame to pay. Business owners can delay their VAT payment for up to 3 months from the date of the finance agreement, giving them the opportunity to spread the cost over a longer period and submit a VAT claim so the funds can be refunded quickly. 

Who is eligible for VAT deferral? 

VAT deferral is available to all VAT-registered businesses in the UK. 

Why should I use VAT deferral? 

As you can push back any VAT payments for up to 3 months, this tool can help to improve cash flow and could enable you to get your money back from HMRC before you need to pay upfront.

Does VAT deferral cost me? 

Depending on the provider, there may be an interest charge to push back your VAT payments. 

How do I get started? 

If your business is looking for a new piece of equipment or machinery, you can apply for asset finance from one of our expert lending partners here. A member of our friendly team can then help you find suitable offers, which may include VAT deferral as an option.

While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here, which has been collated from sources 1, 2. If you have any questions, please speak to your professional adviser or seek independent legal advice.

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