What if I’m not VAT-registered?

If you’re not VAT-registered, VAT becomes part of your total cost and cannot be reclaimed. Finance can still cover it, but it is repaid over the term like the rest of the project cost. Ensure the gross amount fits your affordability.

Is VAT reclaimable on shop fit-outs and refurbishments?

Generally yes for VAT-registered businesses when the costs relate to taxable supplies, but property rules and sector-specific exemptions apply. Confirm reclaimability and any Capital Goods Scheme implications with your accountant.

Should I use a VAT loan or include VAT in my main facility?

If VAT is reclaimable soon, a short VAT-only loan or HP VAT deferral can prevent over-borrowing. If VAT is irrecoverable, including it in your main facility and spreading the cost may be more appropriate.

What documents will lenders ask for?

Commonly: supplier quotes with VAT breakdown, VAT registration number and returns, bank statements, management accounts, and asset or fit-out details. For leased premises, landlord consent may be required.

Can funding cover VAT on equipment, fit-out or refurbishment costs?

Q: Can funding cover VAT on equipment, fit-out or refurbishment costs?

Yes. Many UK business finance options can include or bridge VAT on equipment purchases, fit-outs and refurbishments. The best route depends on VAT registration, whether VAT is recoverable, and the finance product used (e.g., hire purchase with VAT deferral, leases, unsecured loans, or dedicated VAT loans).

Q: Can I finance the VAT on machinery or vehicles?

Yes. On hire purchase, VAT is typically due upfront but some lenders offer VAT deferral or VAT-only loans. On finance or operating leases, VAT is usually charged on each rental, effectively spreading the VAT over time.

The short answer and how VAT interacts with business finance

Yes — many UK business finance options can cover VAT on equipment, fit-out or refurbishment costs, either directly or by bridging it until your VAT reclaim arrives. The best route depends on whether you are VAT-registered, whether the VAT is recoverable, and the finance product you use. Lenders commonly fund VAT via hire purchase, unsecured loans, revolving credit, or dedicated VAT loans.

If your business is VAT-registered and the VAT is reclaimable, you can often use short-term funding to cover the VAT and repay it when the HMRC refund lands. This is popular for high-value equipment and time-sensitive refurbishments. If VAT is partially or wholly irrecoverable, you can still finance it, but it becomes part of your long-term cost base.

Asset finance providers frequently offer VAT deferrals on hire purchase, allowing you to delay the VAT outlay until after your next VAT return. Some will even provide VAT-only loans to match your reclaim timing. Unsecured business loans and revolving credit can also be structured to include VAT within the total project funding.

Can finance include VAT in the advance?

Yes, many lenders will fund the gross invoice including VAT, or they will provide a separate facility to cover VAT. On hire purchase, the VAT is usually due upfront but can sometimes be deferred for three months. On finance lease and operating lease, VAT is typically charged on each rental rather than upfront.

When is VAT reclaimable, and why bridge it?

VAT-registered businesses can usually reclaim input VAT on qualifying costs used for taxable supplies. The reclaim typically arrives after your VAT return is submitted, often quarterly. Bridging the VAT preserves cash flow, prevents project delays, and helps you keep working capital available for day-to-day operations.

Important

VAT rules can be complex, with partial exemption, property-specific rules, and sector nuances. Always confirm reclaimability and timing with your accountant or a VAT specialist before choosing a funding route. The standard VAT rate is currently 20% in the UK, but rates and rules can change.

Funding routes that can cover VAT

There is no single “right” product; the best approach aligns with your VAT status, the asset type, and your cash flow profile. Below are common routes UK SMEs use to cover VAT for equipment, fit-outs, and refurbishment projects. Each has different tax and cash flow implications.

Asset finance: hire purchase vs leases

Hire Purchase (HP): You own the asset at term-end. VAT is normally due upfront on the full invoice.
HP with VAT deferral: Some lenders allow a 3-month VAT deferral to sync with your VAT reclaim cycle.
Finance Lease: You rent the asset; VAT is paid on each rental, spreading the VAT rather than paying it upfront.
Operating Lease: Similar to finance lease but often off balance sheet; VAT still charged on rentals.

For equipment with a clear asset ID and strong residual value, HP and leases are common. For installation, software, or “soft” costs, unsecured or project funding may be required to cover non-asset elements and VAT.

Unsecured business loans and revolving credit

Unsecured term loans can cover the gross cost, including VAT, with predictable monthly repayments. Revolving credit facilities and overdraft-style lines can temporarily bridge VAT and be repaid once HMRC refunds you. These are flexible for mixed project costs like labour, professional fees, and decor.

VAT loans and short-term VAT bridges

Dedicated VAT loans can be used to pay the VAT on asset purchases or to cover quarterly VAT bills. Terms are short, typically 3–6 months, aligning with VAT return timing. This option protects cash flow while keeping your project on track.

Example (illustrative only)

Equipment invoice £100,000 + £20,000 VAT. You finance £100,000 via HP over 5 years and take a £20,000 VAT bridge for 3 months. When HMRC repays £20,000 after your return, you clear the VAT bridge and continue HP payments on the net asset cost.

Fit-out and refurbishment: what’s typically fundable?

Commercial fit-outs and refurbishments often mix assets (e.g., HVAC, machinery) with installation and soft costs (e.g., design, project management). Lenders will typically fund assets under HP or lease, and non-asset items through unsecured or project finance. VAT can be included within these facilities or bridged separately.

Common items lenders will consider

Shopfitting, counters, display systems, and shelving.
Furniture, fixtures and equipment (FF&E), including POS systems.
Mechanical and electrical works, ventilation, HVAC, and lighting.
Flooring, partitioning, ceilings, and compliance upgrades.
Catering or production equipment and specialist machinery.
Professional fees (architects, surveys) — lender-specific treatment.

Ensure your quotes clearly break out VAT, so lenders can structure advances correctly. Some providers will fund a percentage of soft costs; others require a blended solution with an unsecured top-up. Early clarity on scope avoids underwriting delays.

Property VAT quirks to consider first

Commercial property works are usually standard-rated, but exceptions exist.
Residential conversions can attract reduced rates in specific scenarios.
Capital Goods Scheme may apply for property-related works over certain thresholds.
Partial exemption rules can restrict how much VAT you can reclaim.
“Option to Tax” on a commercial property affects VAT treatment on rents and works.

Healthcare, education, and other partially exempt sectors need extra care because VAT recoverability can be limited. If you operate a clinic, care home, or dental practice, you may need to finance irrecoverable VAT over a longer term. See our sector guidance on healthcare business loans for more context.

Compliance note

VAT guidance from HMRC changes and is subject to interpretation. Speak to your accountant to confirm whether your project VAT is recoverable. Align your finance with that advice to avoid shortfalls later.

How to decide and apply: a simple step-by-step

Good funding decisions start with clarity on VAT treatment and timing. Follow these steps to avoid cash flow pressure and reduce risk. The process is quick to begin, and you can often get an eligibility view within days once you engage providers.

Step-by-step approach

Confirm VAT status: Are you VAT-registered, and is the expenditure for taxable supplies?
Check recoverability: Is VAT fully reclaimable, partially exempt, or irrecoverable?
Pick the product: HP/lease for assets, unsecured loan or project finance for soft costs.
Decide on VAT coverage: Include VAT in the advance, use a VAT-only loan, or defer VAT on HP.
Match timelines: Align drawdown with supplier lead times and your VAT return date.
Plan the exit: If you bridge VAT, set a clear repayment from the HMRC reclaim.

This approach ensures you do not over-borrow for longer than needed. It also protects working capital for payroll, suppliers, and seasonal swings. Lenders will look favourably on a well-considered VAT plan.

Typical documents lenders may ask for

Supplier quotations and pro-forma invoices showing net and VAT amounts.
VAT registration number and recent VAT returns if available.
Latest management accounts and filed year-end accounts.
Business bank statements (usually 3–6 months).
Asset lists, serial numbers, and installation details where relevant.
For fit-out on leased premises, landlord consent and lease details.

Start early with clear documentation to shorten decision timelines. Asset-backed deals can be very fast once the paperwork is complete. For complex refurbishments, a phased drawdown may be available.

Timing tip

If your VAT return is due soon, ask about a 3-month VAT deferral on HP. This often lines up the HMRC reclaim with the deferred VAT payment. It is a simple way to avoid a double cash flow hit.

Ready to explore your options? Complete a Quick Quote on BestBusinessLoans.ai for a free, no-obligation eligibility check. We will introduce you to lenders or brokers suited to your project and sector.

FAQs, risks and compliance

Below are concise answers to the most common VAT-and-funding questions we hear from UK SMEs. They apply broadly, but always verify with your accountant. Finance is subject to status, affordability, and provider criteria.

Can I finance the VAT on machinery or vehicles?

Yes. On hire purchase the VAT is usually due upfront, but some lenders will fund a VAT-only loan or offer a short deferral. On leases, VAT is typically charged on rentals, effectively spreading the VAT over time.

Can funding cover VAT on shop fit-outs and refurbishments?

Yes, through unsecured loans, revolving credit, or project finance that includes VAT within the total facility. Lenders may blend asset finance for equipment with a separate facility for installation and soft costs. A VAT bridge can be added if you are reclaiming VAT soon.

What if I am not VAT-registered?

If you are not VAT-registered, VAT is part of your total project cost and cannot be reclaimed. Finance can still cover it, but it will be funded over the term like any other project cost. Budget for the full gross amount when assessing affordability.

How do partial exemption rules affect funding?

If your business makes exempt supplies, you may only reclaim a portion of input VAT. In that case, consider funding the irrecoverable VAT over the asset or project term. Your accountant can estimate the recoverable percentage before you apply.

Can I spread VAT across rentals on a lease?

Yes, leasing typically adds VAT to each rental rather than requiring a single upfront VAT payment. This can help cash flow compared with HP when VAT is not deferred. Always check the total cost and tax treatment with your adviser.

Does HMRC allow reclaiming VAT on fit-out of rented premises?

Generally yes, provided the costs relate to your taxable business activities and you hold valid VAT invoices. There are nuances for property-related items and landlord-tenant arrangements. Take advice on the Capital Goods Scheme and any “option to tax” implications.

Risks and things to watch

Irrecoverable VAT increases the total financed cost; confirm this early.
Capital Goods Scheme adjustments can change VAT recovery over time.
Early settlement or minimum term charges may apply on some facilities.
Security, personal guarantees, and variable rates can affect risk and cost.
Match funding duration to asset life and VAT reclaim timing for efficiency.

About Best Business Loans

BestBusinessLoans.ai is an independent introducer that connects established UK businesses with suitable lenders and brokers. We do not offer loans directly or provide tax advice. Any funding is subject to provider terms, status, affordability, and eligibility.

Information on this page is for general guidance only and is not financial or VAT advice. Always consult a qualified accountant or tax specialist on VAT recovery and structuring. Our aim is to help you navigate providers so you can make informed, people-first decisions.

To check eligibility quickly, complete a Quick Quote. Our AI-driven process will introduce you to relevant providers, with no obligation and no upfront fee to submit an enquiry.

Key takeaways

Yes — funding can cover VAT on equipment, fit-out and refurbishment, either directly or via a short-term VAT bridge.
If VAT is reclaimable, align facility terms or deferrals with your VAT return to protect cash flow.
If VAT is irrecoverable, include it in your long-term funding and affordability planning.
Choose the product that fits the asset type and your sector’s VAT rules (HP, lease, unsecured, or VAT loan).
Confirm VAT treatment with your accountant before you apply, then get matched to suitable providers.

Transparency and compliance

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