VAT Deferral

Last updated: 28/11/2024

VAT deferral for UK businesses

When businesses finance assets like vehicles, construction equipment, or agricultural machinery through a hire purchase agreement, the value added tax (VAT) is typically due upfront at the start of the deal.

Although VAT-registered businesses can reclaim this amount, covering the cost initially can strain your cash flow, especially when managing other operational expenses.

We can offer an option to defer the VAT for up to 3 months from the date of the finance agreement, giving you additional time to pay. This gives your business valuable breathing space and helps you preserve working capital when it matters most.

What is VAT deferral?

VAT deferral is when a business delays the VAT payable on buying any business assets like equipment and vehicles for up to 3 months from the start date of the finance agreement.

One of the main reasons why businesses would choose to deferral the VAT by up to 3 months would be the financial drain on business cashflow. There can be times when a businesses struggles to pay what they owe HMRC on time and the VAT deferral product would allow this to be delayed which could benefit the business.

Deferred VAT on hire purchase agreements

Investing in new equipment or vehicles is often essential for growing your business, but the upfront costs can be significant. That’s why many businesses opt for a hire purchase agreement when acquiring different types of business assets.

With a hire purchase arrangement, you spread the cost of the asset over a fixed term, usually between two to seven years. Once all payments are made, ownership of the asset transfers to your business, offering long-term value while easing any initial financial burden.

This structure allows for predictable monthly payments, making budgeting easier. However, one key challenge with HP is that the entire VAT amount is typically due at the start of the agreement. Although this VAT can be reclaimed through your quarterly VAT return, the upfront payment can create a short-term cashflow strain.

To help ease this pressure, some lenders offer a VAT deferral facility. This option gives you up to three months before you need to pay the VAT portion, aligning the payment with your ability to reclaim it from HMRC. During this time, the finance provider pays the VAT directly, and you repay it starting from the third instalment.

Benefits of VAT deferral

Some of the benefits of using a VAT deferral scheme are:

• Improved cash flow by delaying VAT payments.
• Flexible payment plans that can suit your business’s financial situation.
• No interest or penalties on deferred VAT payments (if paid within the agreed period).
• Helps manage temporary cash flow gaps without affecting business operations.
• Quick and simple application process.
• Helps businesses retain working capital for other operational needs.

Who is eligible for VAT deferral?

All businesses within the UK which are registered for VAT can apply for defer VAT for 3 months on all hire purchase agreements for assets such as machinery, cars, construction equipment and agriculture machinery.

How does VAT deferral help my business?

The requirement to make the next VAT payment is essentially delayed for three months, meaning you will be able get the refund from the HMRC before the VAT is due to be paid. This will assist businesses with short term cashflow problems.

Is the VAT deferral compulsory?

No, VAT deferral is not compulsory. Businesses can continue to stick to their current payment due dates and pay their VAT as normal. However, it is beneficial for businesses cash flow to use the VAT deferral option on purchases.

Does VAT deferral cost me? 

Depending on the chosen provider, there may be an interest charge to push back your VAT payments when purchasing any asset. 

How to apply for VAT deferral

If you would like further information about vat  deferral options, simply fill in the form and we will contact you. If you want to speak to someone directly, you can call us on 0115 958 6872 and a member of our team will be happy to speak to you. Alternatively, email us at [email protected].