Introduction — why VAT & Corporation Tax bills matter for construction firms

Construction businesses routinely juggle large, lumpy payments: stage payments, retention releases, delayed client payments and payroll for subcontractors. Add a VAT return or an annual Corporation Tax bill and you can quickly face a cash shortfall that threatens project continuity. Missing an HMRC payment can trigger interest and penalties, disrupt materials purchases or threaten subcontractor relations.

A short-term tax loan can bridge that gap — but is it the right bridge for your firm? Below we explain when tax loans make sense for construction companies, what costs to expect, how lenders underwrite these facilities and what alternatives often prove cheaper or more sustainable.

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What is a short-term tax loan?

A short-term tax loan (sometimes called a VAT loan, tax payment loan or tax bridging loan) is a business finance product designed specifically to pay an immediate tax liability — typically VAT or Corporation Tax. These facilities are usually short in duration (30–180 days, sometimes up to 12 months) and can be unsecured or secured depending on the lender and the amount required.

Typical providers include specialist tax finance companies, bridging lenders and some business lenders via brokers. Within the construction sector, brokers sometimes package tax loans alongside other sector-specific products such as retentions finance or invoice finance.

• Common product types you’ll see: tax loans, bridging loans, invoice finance, retentions finance, overdrafts and HMRC Time to Pay (TTP).
• Minimum typical facility: for our partners, we usually work with loan sizes from around £10,000 upwards.

Get Quote Now — tell us the amount and the tax due and we’ll connect you to lenders who can respond fast.

Can you use a short-term tax loan to pay VAT or Corporation Tax?

Short answer: yes. Many lenders will lend specifically to pay HMRC liabilities, but the appetite and terms vary with the tax type and borrower profile.

VAT

VAT liabilities are regular and predictable (quarterly or monthly). Lenders commonly finance VAT bills, particularly where the VAT arises from timing differences (e.g., invoices raised but payments delayed) rather than long-term poor trading performance. Lenders will typically request recent VAT returns and bank statements to confirm the liability and turnover.

Corporation Tax

Corporation Tax is often a larger, less frequent liability. Some lenders will underwrite CT loans, but larger CT bills may attract stricter security requirements or higher costs. Lenders will want to see management accounts, tax computations and evidence of profitability or forecast cashflows that show you can repay.

Construction-specific notes

In construction, lenders focus on contract pipelines, retention schedules and client creditworthiness. If the shortfall arises because retentions or stage payments are delayed, a retentions finance or invoice finance solution may be more appropriate — see the alternatives section for detail.

Free Eligibility Check — submit a quick enquiry and we’ll match you to lenders and brokers experienced in construction tax financing.

Pros and cons: should a construction business use a tax loan?

Pros

• Immediate funds to pay HMRC and avoid interest/penalties.
• Can be arranged quickly — some lenders can fund within 24–72 hours once checks are complete.
• Prevents disruption to projects, payroll and supplier relationships.
• Useful as a one-off bridge when a known cash inflow (retention release, client settlement) is imminent.

Cons & risks

• Cost: short-term tax loans can carry higher fees and interest than longer-term borrowing or HMRC TTP.
• Security: larger loans may require a charge against assets (plant, property) or personal guarantees.
• Temporary fix risk: if underlying cashflow problems persist, repeated tax loans increase debt and risk insolvency.
• Repayment timing: tax loans must be repaid according to lender terms — mismatch with your cashflow can be dangerous.

Construction red flags

• Repeatedly using tax loans for the same seasonal shortfall.
• Using tax loans when cheaper sector solutions (invoice finance, retentions finance) would address the underlying issue.

Before you sign anything, discuss options with your accountant and compare quotes. Get Quote Now.

Alternatives construction firms should consider

Often there are cheaper or more sustainable ways to manage a VAT or CT bill:

HMRC options

• Time to Pay (TTP) — HMRC will often set up instalment plans for genuine short-term difficulty. No lender fees, but HMRC expects evidence of affordability and may charge interest.

Commercial alternatives

• Invoice finance / factoring — release funds against outstanding invoices; common and often cheaper than a tax loan for ongoing cashflow problems.
• Retentions financing — specialist product for construction retentions, releasing cash tied up by clients or main contractors.
• Asset finance — raise funds against plant or equipment rather than borrowing specifically for taxes.
• Short-term business loans or overdrafts — sometimes lower-cost options depending on your relationship with a bank.

Which is preferable? If the tax bill is a one-off timing issue and you have a clear incoming payment (retention, client invoice), a tax loan can be justified. If cashflow problems are recurring, invoice finance or retentions finance may be a better long-term solution.

Looking for sector-specific solutions such as retentions finance or construction lending? See our page on construction business loans for tailored options and how lenders assess sector risk.

Free Eligibility Check — tell us which alternative you’re considering and we’ll match you to specialists.

How lenders assess tax loan applications — what construction businesses should prepare

Lenders will want to confirm the liability, your ability to repay and the reason for the shortfall. Typical documents and information include:

• Company accounts or management accounts (last 12 months).
• Recent VAT returns and evidence of the VAT due.
• Corporation tax computation or HMRC notice of tax due.
• Business bank statements (3–6 months).
• Copies of key construction contracts, POs and retentions schedules.
• Cashflow forecast showing the inflow that will repay the loan (e.g., retention release date, client payment schedule).
• Director details and, where required, information on security or guarantees.

Practical tip: have your VAT returns and management accounts up to date — it speeds approval and secures better terms.

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Typical costs and illustrative examples

Costs vary widely by lender, loan size and security. Typical fee components include arrangement fees, facility fees, monthly or daily interest and early repayment charges. Below are illustrative examples (for guidance only):

Example A — VAT shortfall for a small contractor

VAT due: £15,000. Lender offers a 90-day tax loan with a 3% arrangement fee (£450) and an effective cost equivalent to 1.5% per month (approx. £675 for 3 months). Total illustrative cost ≈ £1,125 (~7.5%).

Example B — Corporation Tax for a larger limited company

CT due: £60,000. Lender requires security and charges a 2.5% arrangement fee (£1,500) plus interest at an annualised 18% pro rata for 6 months: interest ≈ £5,400. Total illustrative cost ≈ £6,900 (~11.5%).

Compare this to HMRC Time to Pay (which may attract only modest interest) or invoice finance (which might cost 1–3% of the invoice value depending on product). Numbers vary — always request firm quotes.

Before you decide, ask: What is the total cost (all fees + interest) over the expected life of the loan? What security is required? Are there early repayment fees?

Actual offers depend on your business and the lender. UK Business Loans introduces you to lenders and brokers who provide personalised quotes.

Step-by-step: how to apply via UK Business Loans

1. Click Free Eligibility Check and complete the short enquiry (about 2 minutes).
2. We match your case to lenders/brokers who specialise in construction and tax financing.
3. You receive contact and no-obligation quotes by phone or email — compare offers.
4. Choose an offer and the lender completes their checks and funds the facility.

We do not charge you to be matched. Submitting an enquiry is not an application and does not affect your credit score.

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FAQs

Will a tax loan affect my credit score?

Submitting an enquiry via UK Business Loans will not affect your credit score. Lenders or brokers may carry out credit checks during a formal application and will notify you beforehand.

Is HMRC Time to Pay usually cheaper than borrowing?

Often yes — HMRC TTP can be lower cost because there are no lender arrangement fees. But TTP requires negotiation and evidence of affordability and may not fit every timing need.

Can I use an unsecured loan for tax?

Yes, unsecured short-term loans exist for smaller amounts, but they may have higher interest rates and stricter eligibility criteria.

What happens if I can’t repay a tax loan?

Risks include default, higher charges and, if the loan is secured, potential enforcement against assets. If repayment looks difficult, speak to your accountant and the lender immediately — early communication helps.

Does UK Business Loans lend directly?

No. We introduce you to lenders and brokers. Completing an enquiry helps us match you to the most relevant providers — there’s no obligation to proceed.

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Final summary & next steps

Can you use a short-term tax loan to spread the cost of VAT or Corporation Tax? Yes — many construction businesses do, especially when a short-term timing gap threatens project delivery or HMRC penalties. But tax loans can be costly and sometimes contain security or guarantee requirements. Always compare a tax loan against HMRC Time to Pay, invoice finance and retentions finance.

If you want impartial matching to lenders and brokers experienced in construction tax finance, complete our quick enquiry: Free Eligibility Check. We’ll only share your details with selected partners to provide quotes — the enquiry is free and non-binding.

Compliance note: UK Business Loans is an introducer — not a lender or financial adviser. Information on this page is general and not personalised financial advice. Speak to your accountant or financial adviser before borrowing. Your details are handled securely and only shared with selected partners to provide quotes; see our Privacy Policy for details.