There are many ways bridging finance can be used in everyday life; purchasing at auction, financing probate properties, and to pay for refurbishments, for example. In this blog we explore how you can use bridging finance to cover tax bills in the short-term.
This is particularly useful if you’re self-employed, are a contractor, or run your own business, as you will have multiple tax liabilities which could leave you with large unexpected bills. This coupled with the fact you will often be waiting for payment from clients for work you have completed, can really hinder your ability to pay off a large tax bill.
This is where securing bridging finance to cover tax bills can help hugely with cash flow, as you can take out the loan and pay it off at a time when your business is more financially secure.
Bridging finance to cover tax bills on commercial property
When buying a commercial property which is fewer than three years old, the purchase will attract value added tax (VAT) on the purchase price at the prevailing rate, which is currently 20%. If the commercial property is older than three years, however, and if the current owner has opted to tax the property, standard rate VAT will also be applied.
As a VAT registered company, you can claim back the 20% tax after a lengthy period of time. However, 20% is a sizeable chunk of any budget and for the purposes of cash flow and financial stability, it can be a limiting factor in any business project as, traditionally, lenders will not include VAT in their loan calculation, leaving borrowers to fund the extra cost.
A bridging loan can be sought to cover this up-front cost, enabling you to pay it off at a time when cash flow is a little less under pressure. Furthermore, business owners can claim this charge back from HMRC, so the bridge is only required until this is complete.
If you would like to discuss how we can help you secure bridging finance to cover tax bills, get in touch with our specialist bridging team who would be happy to discuss your options.