Can VAT be funded or deferred on financed green equipment? (Sustainability loans UK)

Buying solar panels, EV chargers, heat pumps or other sustainable equipment often comes with a sizeable VAT bill. The good news: in many cases you can manage that VAT through finance — or use alternative routes to avoid a large upfront payment. This guide explains how VAT works on green capital purchases in the UK, which finance products typically fund VAT, when HMRC deferral is an option, and practical steps to get the right funding solution. If you want tailored options, complete a Free Eligibility Check to get matched with specialist lenders and brokers: Get Quote Now.

Table of contents

• Quick answer (TL;DR)
• How VAT normally works on equipment purchases
• VAT and common finance structures
• Options for VAT funding for green equipment
• VAT deferral and HMRC Time To Pay
• Green-specific reliefs, grants and VAT reclaim points
• Practical checklist: what to ask lenders & brokers
• Costs, pros & cons, accounting implications
• How UK Business Loans can help
• FAQs
• Compliance & disclaimer

Quick answer (TL;DR)

Short answer: sometimes. Many lenders and brokers can arrange VAT funding — where the VAT is added to the financed sum — or short-term bridging to cover VAT until you reclaim it. VAT deferral with HMRC is a separate tax arrangement (Time To Pay) and not a standard finance product. Availability depends on your VAT status, the finance product and lender. For personalised quotes and options, get a Free Eligibility Check: Free Eligibility Check.

How VAT normally works on equipment purchases

VAT at the standard rate (usually 20%) is charged by the supplier when they invoice for goods and installations. For most commercial green equipment the supplier will add VAT to the invoice.

• If your business is VAT-registered and the asset is used for taxable business activities, you can normally reclaim that VAT on your VAT return — reducing the effective cash cost.
• If you are not VAT-registered, or the supply is not eligible for reclaim (e.g., certain domestic installations), the VAT is a real, irrecoverable cash cost.
• Timing is important: the VAT is due when invoiced, but you might not reclaim it until your next VAT return — creating a short-term cashflow gap.

VAT and common finance structures

How VAT is charged and whether it can be financed depends on the type of finance you choose:

Hire Purchase (HP)

Under HP the supplier usually invoices you for the asset (including VAT). Some funders offer VAT funding which rolls the VAT into the financed amount so you repay VAT over the loan term. Check whether interest applies to the VAT portion.

Finance lease

The lender buys the asset and leases it to you. VAT treatment varies: VAT can be charged on the lease payments or at purchase — speak to a broker who specialises in asset leases for green equipment.

Operating lease (rental)

Operating leases typically avoid one large upfront VAT liability to the customer: VAT is charged on periodic rental invoices. For VAT-registered businesses this can ease the initial cash requirement because you reclaim VAT on rentals as they are paid.

Asset finance / business loan

If you take a loan to buy the asset from the supplier, supplier VAT is generally payable when invoiced. Lenders may offer VAT funding or short-term bridging to cover that invoice.

Supplier credit / staged invoicing

Large installations (solar, battery storage) may be invoiced in stages — VAT is due on each invoice. Matching finance to invoice stages can help manage cashflow.

Note: If you are VAT‑registered and can reclaim promptly, you may not need to finance VAT — but the timing of the reclaim relative to the invoice matters.

Options for VAT funding when buying green equipment

Here are the practical finance options commonly used to manage VAT on green purchases:

1. VAT-funded finance (VAT funding)

Lenders can add the VAT amount to the financed capital so you repay VAT as part of the loan or lease. This is useful if you can’t immediately pay VAT or are not VAT-registered. Interest will normally be charged on the VAT element, so compare costs.

2. Short-term VAT bridging loans

Some brokers arrange short-term bridging finance that covers the VAT invoice until you reclaim it or receive grant payments. These are designed to be repaid quickly and usually have lower term-related costs than long-term funding.

3. Payment holidays / deferred first payment

Some lenders allow first payment deferrals or structure repayments to start after installation — aligning lender repayments with expected VAT reclaims or grant receipts.

4. Leasing or operating rentals

Leases can convert one large VAT invoice into periodic VAT on rentals. This often improves immediate cashflow for businesses that can reclaim VAT on each rental charge.

5. Supplier or grant timing

Talk to suppliers about staged billing or whether they can delay invoicing until finance or grants clear. Also coordinate grant application timing with finance if you are receiving subsidies.

VAT deferral: availability and practical alternatives

“VAT deferral” can mean different things. Important distinctions:

• HMRC Time To Pay (TTP): a tax authority arrangement to pay owed VAT over time. This is agreed with HMRC and is not a lender product. TTP is available in certain circumstances — contact HMRC or your accountant early if you face difficulty.
• Lender-led VAT deferral: lenders do not change your legal VAT liability to HMRC — instead they fund the VAT so you can meet HMRC obligations while repaying the lender under a finance contract.
• Temporary government interventions (e.g., past COVID schemes) are specific to the event and not permanent options.

If you’re worried about meeting a VAT bill, speak to your accountant and contact HMRC early. At the same time, a broker can often arrange short-term VAT funding to preserve operations and avoid late payment penalties.

Green-specific reliefs, grants and VAT reclaim considerations

Some installations and materials have special VAT treatments or were subject to government reliefs in the past — but rules vary by use (domestic vs commercial). Key points:

• Most commercial green equipment is standard-rated for VAT and not eligible for domestic VAT reliefs.
• If a grant or incentive applies, coordinate its timing with your finance so you don’t finance money you’ll immediately receive as a subsidy.
• Always confirm VAT treatment for your specific installation with your supplier and accountant — incorrect VAT handling risks penalties.

For a broader view of sustainability funding options see our sustainability loans information on sustainability loans.

Practical step-by-step checklist: what to ask lenders & brokers

1. Are you VAT‑registered and will you reclaim VAT on this asset?
2. Ask the supplier: when will invoices be raised and can they stage billing?
3. To lenders/brokers ask: “Do you offer VAT funding or short-term VAT bridging? Is VAT added to the financed capital? What interest and fees apply to the VAT element?”
4. Ask about repayment timing: can repayments start after VAT reclaim or grant receipt?
5. Compare APR, arrangement fees, documentation fees and early repayment terms across quotes.
6. Get written terms that clearly show how VAT is handled in the repayment schedule.
7. Get independent tax/accounting advice for complex or large projects.

If you’d like help getting multiple quotes quickly, start a Free Eligibility Check and we’ll match you with lenders and brokers who handle VAT funding: Get Quote Now.

Costs, pros/cons and accounting implications

Pros of VAT funding

• Improves immediate cashflow and enables earlier installation.
• Avoids late payment to HMRC if you don’t have cash on hand.

Cons

• Interest and fees are normally charged on the VAT amount — increasing the total cost.
• May complicate accounting unless documented clearly.

Accounting notes

• VAT-funded amounts are still VAT payable to HMRC at the point of sale — the lender does not change your tax liability. If you reclaim VAT later, ensure records are accurate so VAT is reclaimed correctly.
• Interest and fees treatment for tax purposes varies — get advice from your accountant.

How UK Business Loans can help

UK Business Loans does not lend money. We match UK businesses (loans from roughly £10,000 upwards) with lenders and specialist brokers who offer sustainability finance, asset finance and VAT funding solutions. Complete our short enquiry for a Free Eligibility Check and we’ll connect you with partners who can provide personalised quotes and explain VAT treatment for your project: Free Eligibility Check.

Frequently asked questions

Can VAT be included in a business loan for green equipment?

Yes. Many lenders can include the VAT amount in the financed capital (VAT funding), though cost and availability vary. If you can reclaim VAT quickly, you may not need it.

What finance type helps avoid a large upfront VAT bill?

Operating leases (rentals) usually charge VAT on periodic rental invoices rather than a single large invoice, and some lenders offer VAT funding or short-term bridging loans.

I’m VAT-registered — do I still need VAT funding?

Usually not if you can reclaim VAT on your next return. However, the timing mismatch between the invoice and reclaim can create a short-term cashflow need; bridging solutions can help.

Is VAT deferral the same as VAT funding?

No. VAT deferral usually means arranging a Time To Pay plan with HMRC. VAT funding is a finance product where a lender covers VAT and you repay under a finance agreement.

Can HMRC allow me to defer VAT?

HMRC may agree a Time To Pay arrangement in specific cases. Contact HMRC or your accountant early — this is a tax authority agreement, not a lender product.

How can I find lenders who offer VAT funding?

Ask brokers and lenders directly, or let us match you quickly. Start a Free Eligibility Check here: Get Quote Now.

Compliance & disclaimer

We are an introducer that connects businesses with lenders and brokers. UK Business Loans does not provide loans, legal, tax or accounting advice. Always seek independent advice from your accountant or HMRC on VAT-specific questions before entering any finance or tax arrangement.

Ready to get matched with lenders and brokers who arrange VAT funding, bridging or tailored sustainability finance? Complete a short, no‑obligation enquiry and receive personalised quotes: Get Quote Now.

1. Can VAT be included in a business loan for green equipment? — Yes — many UK lenders and brokers offer VAT funding that rolls the VAT into the financed capital so you repay it as part of the loan or lease, though availability and cost vary.

2. If my business is VAT-registered, do I still need VAT funding for solar panels or EV chargers? — Usually not if you can reclaim VAT on your next return, but short-term cashflow timing can make short-term VAT bridging or deferred repayments useful.

3. Which finance types help avoid a large upfront VAT bill on sustainability projects? — Operating leases (rental), VAT-funded asset finance, and short-term VAT bridging loans are common options to spread or convert the upfront VAT liability.

4. What is the difference between HMRC Time To Pay (VAT deferral) and lender VAT funding? — HMRC Time To Pay is a tax-authority arrangement to spread VAT payments directly with HMRC, whereas VAT funding is a finance product where a lender pays the VAT and you repay them under a loan or lease.

5. How can I find lenders who specialise in VAT funding or sustainability loans UK? — Use UK Business Loans’ Free Eligibility Check to be matched quickly with FCA-regulated lenders and brokers who handle VAT funding and green equipment finance.

6. Will submitting an enquiry via UK Business Loans affect my business credit score? — No — submitting the quick, free enquiry does not affect your credit score; lenders may perform checks only if you proceed with an application.

7. How quickly will I receive responses and personalised quotes after completing the Free Eligibility Check? — Most businesses receive contact from matched lenders or brokers within hours, with formal quotes often following shortly after.

8. What costs should I expect when financing VAT on green equipment? — Expect interest and possibly arrangement fees charged on the VAT element as part of the overall APR, so compare fees, interest and early repayment terms across quotes.

9. Can supplier staged invoicing or grant timing reduce the need to finance VAT? — Yes — staging invoices or coordinating grant payments with your finance can often eliminate or reduce short-term VAT funding requirements.

10. What information do I need to start a Free Eligibility Check for sustainability finance? — Basic business details, the amount you need, the type of green equipment or project, and your VAT status are usually all that’s required to get matched with suitable lenders and brokers.