What are VAT and corporation tax loans?

VAT and corporation tax loans (often called tax payment loans or HMRC bridging loans) provide short-term finance to pay HMRC liabilities. They are usually taken to:

• meet one-off or seasonal VAT bills;
• cover an unexpected corporation tax liability after a profitable year;
• avoid HMRC late-payment penalties or enforcement action while arranging longer-term funding.

These facilities range from a few days to several months and are designed to bridge timing gaps rather than fund long-term investment.

How they differ from standard business loans

Key distinctions include:

• Term: Typically short (days to 6 months) versus multi-year business loans.
• Speed: Faster decisioning and funding, often within 24–72 hours for bridging products.
• Cost: Higher headline rates and arrangement fees; lenders price speed and short-term risk.
• Purpose: Explicitly for statutory tax obligations — lenders expect clarity on use of funds.

If you only need more time, HMRC’s Time to Pay option may be an alternative (see section below).

Common loan types solicitors use for VAT & corporation tax

Short-term tax loans / HMRC bridging loans

Purpose-built facilities to cover tax bills. Pros: quick, structured for tax payments. Cons: higher costs, often requires proof of liability.

Business overdrafts & working capital lines

Revolving facilities that can be used to meet tax bills. Pros: flexible. Cons: banks may restrict use and require regular review.

Invoice finance

If a practice has billed clients and awaits payment, invoice discounting or factoring can unlock funds. Pros: converts WIP/invoices to cash. Cons: some lenders avoid legal sector WIP linked to client money rules.

Asset-secured loans

Secured against property or equipment. Pros: lower rates for well-secured loans. Cons: can take longer to arrange and may require security.

Director/partner guarantees

Smaller firms may be asked for personal guarantees or director security — negotiate limits and terms with your adviser.

HMRC Time to Pay

Non-loan alternative: HMRC will often agree a Time to Pay arrangement for genuine short-term hardship — contact HMRC directly or use an adviser to negotiate. This does not incur lender fees, but interest and penalties may still apply.

How lenders assess solicitors and law firms

Lenders and brokers evaluate practices differently to other industries. Typical underwriting considerations:

• company structure (limited company or LLP) and confirmed trading history;
• recent management accounts and 12–24 months bank statements;
• cashflow forecasts showing how tax will be paid back;
• WIP, invoices and client money accounts — lenders want clarity on source of funds;
• professional indemnity insurance and regulatory compliance;
• credit history, outstanding debts and director/partner track record.

What to prepare: latest management accounts, VAT returns, corporation tax computations, bank statements and a short explanation of the tax liability. Having these ready speeds the process.

Regulatory & compliance considerations (SRA & HMRC)

Solicitors must follow SRA rules — particularly around client money. Important points:

• Do not use client account funds to pay firm liabilities unless a proper process allows it. SRA guidance is strict — check internal procedures or seek legal compliance advice.
• HMRC liabilities are statutory. Ignoring them risks interest, penalties or enforcement.
• Anti-money laundering (AML) and KYC checks are standard when large sums move; lenders will need to satisfy these requirements.

This page is for general information and not a substitute for specialist tax or legal advice. Speak to your accountant or compliance officer for firm-specific guidance.

Costs, tax treatment and accounting considerations

Costs vary. Common charges include arrangement fees, commitment fees, interest and early repayment fees. Expect higher effective rates for short-term bridging products compared with longer-term loans.

Tax treatment:

• Interest on business borrowings used wholly and exclusively for the business is generally deductible for corporation tax purposes — confirm with your accountant.
• VAT: interest is generally outside the scope of VAT; some lender fees may attract VAT — check supplier invoices.

Always get an accountant to confirm how finance costs should be recorded in your accounts and whether they’re deductible.

Typical timeline & step-by-step application process

Typical stages and timelines for tax-focused finance:

1. Submit a short enquiry (minutes) — include liability amount and documents available.
2. Broker/lender initial match and call (hours–1 business day).
3. Due diligence and credit checks (24–72 hours).
4. Offer issued and terms agreed (same day–3 days).
5. Funds released (same day–7 business days) depending on product and security.

Ready to see options? Get Quote Now — our quick enquiry takes under two minutes and will not affect your credit score.

Risks, pros and cons

Pros

• Fast access to funds to meet statutory obligations;
• Prevents HMRC enforcement and preserves operations;
• Helps preserve relationships with staff and suppliers by avoiding insolvency risk.

Cons

• Higher cost than standard finance;
• Possible personal guarantees or security required;
• Failure to repay can lead to lender enforcement or financial strain on the practice.

Mitigation tips: compare offers, ask for full APR-equivalent costs, and discuss restructuring with your accountant if liabilities are recurrent.

Short anonymised case studies

Case study A — VAT shortfall for a regional firm

A four-partner limited company faced an unexpected VAT bill due after a late client settlement. They needed £45,000 urgently. A specialist tax bridging loan was arranged via a broker: funds provided within 48 hours, arrangement fee of 2% and interest for 3 months. The firm repaid after client settlement cleared, avoiding penalties and cashflow disruption.

Case study B — Corporation tax timing gap

A mid-size practice owed corporation tax after a profitable year. They negotiated a blended solution: short-term invoice finance to release billed fees plus a Time to Pay instalment arrangement with HMRC for the remainder. This reduced finance costs and spread cash outflows while keeping HMRC informed.

Want to explore which route suits your firm? Free Eligibility Check.

How UK Business Loans helps solicitors

We are a specialist introducer connecting solicitors with lenders and brokers who understand law firms. Our service is free and designed to save you time and improve your chances of finding a suitable solution for tax liabilities of £10,000 and above.

• Quick matching to lenders/brokers experienced with legal practices;
• No-obligation quotes so you can compare costs and terms;
• Submitting an enquiry does not affect your credit score.

Get Quote Now to start a free eligibility check and receive tailored responses by phone or email.

For more detail about finance options for legal firms, see our industry hub on solicitors business loans.

Frequently asked questions

Can solicitors borrow to pay VAT or corporation tax?

Yes. Short-term tax loans, overdrafts, invoice finance and HMRC Time to Pay arrangements are common solutions. Choose based on speed, cost and your firm’s security position.

Will applying affect my credit score?

Submitting an enquiry through UK Business Loans does not affect your credit score. Lenders may perform credit checks later if you proceed with an application.

Can I use client money to pay tax?

No — client account rules are strict. Seek internal compliance advice before moving client funds. SRA guidance should be followed at all times.

Are tax loan interest payments deductible?

Generally, interest on business borrowings used for business purposes can be deductible for corporation tax, but you should confirm with your accountant.

How fast can I get funds?

Some bridging loans fund within 24–72 hours; others may take up to a week depending on security and approvals.

Do I need to provide personal guarantees?

Smaller or younger practices may be asked for personal guarantees. Larger firms with strong accounts often negotiate limited or no guarantees.

Next steps — Get a free quote

If you need short-term funding to meet a VAT or corporation tax bill, the fastest way to see options is to complete our short enquiry. We’ll match your firm to brokers and lenders who specialise in tax funding for legal practices.

Get Started — Free Eligibility Check