Can I access finance if I have HMRC or VAT arrears?

Short answer: Often yes — but your options, costs and lender selection will depend on the size of arrears, any Time to Pay plan, and your security or cash flow.

What lenders look for when there are tax arrears

HMRC or VAT arrears don’t automatically rule out business finance in the UK. However, many lenders see overdue tax as a warning sign and will assess risk more tightly. The key factors are the amount outstanding, how long arrears have been overdue, and whether you’re in a formal HMRC Time to Pay (TTP) arrangement.

Providers will also weigh up affordability, your trading performance, and available security or assets. They may request evidence that the arrears are under control. Typical documentation includes your most recent VAT returns, HMRC correspondence, and bank statements.

If arrears are large or escalating, mainstream unsecured lenders may decline. In these cases, specialist lenders, secured loans, or asset-backed facilities can still be viable if the fundamentals of the business are sound.

Why a Time to Pay arrangement can help

A formal TTP with HMRC is often seen as positive because it shows engagement and a plan to clear arrears. Lenders may ask for proof of the arrangement and confirmation of payments made to date. They will want to understand the remaining schedule and its impact on cash flow.

If you don’t have a TTP, consider applying through HMRC as early as possible. Early dialogue demonstrates responsible management and may prevent enforcement action that could jeopardise finance options. You can learn more about TTP on GOV.UK.

Remember that HMRC can be a preferential creditor if a business fails, which is why lenders look closely at tax arrears. A credible repayment plan and up-to-date filings can reassure prospective providers.

Typical thresholds and lender tolerance

Tolerance varies widely by product and provider, but some patterns are common. Smaller, recent arrears with a TTP and on-time payments are usually more acceptable. Large, historic arrears with missed HMRC deadlines and warning letters make approval harder.

Invoice finance and asset-backed facilities can sometimes proceed even where unsecured options cannot. That’s because the funding is secured against invoices or assets rather than general cash flow alone. If the arrears are minimal and director credit is strong, certain unsecured lines may still be feasible.

Every case is judged on its merits, so gathering evidence and presenting a clear plan is important. The right introducer can help you identify lenders who are comfortable operating with tax arrears in the picture.

Funding options that may still be available with HMRC or VAT arrears

1) Invoice finance (factoring and invoice discounting)

Invoice finance advances a percentage of your unpaid B2B invoices to improve cash flow. Because the facility is tied to the quality of your debtor book, some providers can support businesses with HMRC arrears. They will look at customer concentration, debtor quality, and dispute history.

Pros include quick access to working capital and funding that grows with your sales. Cons include fees on the facility, the need for organised credit control, and in some cases customer notification. Lenders may ask that borrowings also help maintain HMRC payments under a TTP.

If you have strong customers, clean ledgers, and predictable collections, invoice finance is a practical way to stabilise cash flow while addressing tax obligations. It’s common in manufacturing, logistics, and wholesale sectors.

2) Merchant cash advance (card takings finance)

A merchant cash advance provides a lump sum repaid via a fixed percentage of future card sales. Providers focus on recent card turnover rather than traditional collateral. This can be useful for retail and hospitality where card revenues are consistent.

Pros include repayments that flex with sales, minimal security, and speed of setup. Cons include potentially higher costs than traditional loans and a preference for businesses with stable card income. Some providers will accept HMRC arrears if a sensible repayment plan is in place.

Structured correctly, this can bridge a short-term gap and help you keep up with VAT or PAYE obligations. Be mindful of total cost and ensure repayments won’t strain cash flow.

3) Asset refinance and equipment finance

Asset refinance uses owned equipment, vehicles, or machinery as security to release working capital. Because the funding is asset-backed, lenders can be more flexible where tax arrears exist. They will value the assets and consider age, condition, and resale markets.

Pros include competitive rates relative to unsecured options and preservation of existing cash reserves. Cons include potential repossession if repayments are missed and the need for suitable assets. This route can also consolidate multiple finance agreements to reduce monthly outgoings.

If your business has solid tangible assets, refinance can provide the liquidity to catch up on HMRC payments and stabilise operations. Ensure you understand any early settlement fees on existing agreements.

4) Secured business loans and second-charge facilities

Some lenders will consider a secured loan even with HMRC arrears, particularly where there is strong collateral. Security can include property, high-value equipment, or personal guarantees. The presence of security may offset perceived risk from tax arrears.

Pros include larger loan sizes and potentially sharper pricing than unsecured equivalents. Cons include legal processes, valuation costs, and the risk of asset loss on default. Lenders will scrutinise affordability alongside arrears status and filing compliance.

If a loan is used to clear HMRC debts, be careful not to over-borrow. Sustainable repayments are critical to avoid a worsening position later.

5) Short-term working capital or consolidation loans (specialist)

Some specialist lenders will consider short-term facilities designed to clear arrears and other pressing liabilities. These often require robust evidence of trading recovery and a clear exit plan. Pricing is typically higher due to increased risk.

Pros include speed and targeted use to bring liabilities up to date. Cons include cost, tighter covenants, and the need for a strong plan to return to normal lending criteria. Where appropriate, seek professional advice before proceeding.

Note that straightforward unsecured term loans are usually the hardest to obtain with material tax arrears. Lenders tend to prioritise asset-backed or revenue-backed solutions in such cases.

Important note on government support schemes

The Growth Guarantee Scheme (British Business Bank) supports eligible lending by providing a partial guarantee to the lender, not the borrower. Eligibility criteria and lender policies still apply. Arrears can impact eligibility, so clarity and up-to-date filings remain essential.

How to improve your eligibility and strengthen your application

Step 1: Engage HMRC early and secure a Time to Pay where needed

Proactive contact with HMRC can prevent escalation and enforcement action. If you already have a TTP, maintain payments and keep records. If you don’t, apply promptly and document the agreed schedule.

Demonstrate you understand the causes of the arrears and the measures you’ve taken to prevent recurrence. Lenders value management that faces issues directly. Consistent compliance improves confidence and speeds up underwriting.

Consider professional advice from your accountant on cash flow forecasting tied to the TTP. A credible plan increases lender trust.

Step 2: Prepare clear, current financial information

Have the following ready: last two years’ accounts, recent management accounts, bank statements (usually 3–6 months), aged debtor/creditor reports, VAT returns, and HMRC correspondence. Up-to-date filings matter.

Include a short narrative explaining the arrears, how they arose, and the corrective actions taken. Use realistic projections with assumptions that match recent performance. Avoid optimistic forecasts without evidence.

Where seasonality applies, show how cash flow ebbs and flows, and where the requested facility fits. Lenders want to see that the funding will improve resilience, not just delay problems.

Step 3: Reduce risks in parallel

Trim discretionary costs, negotiate supplier terms, and accelerate receivables where possible. If appropriate, consider part-paying HMRC before you apply to demonstrate commitment. Even small reductions in arrears can shift lender sentiment.

Correct errors in your credit files and address any unresolved CCJs if possible. Keep director credit clean — it can be decisive in marginal cases. Ensure all returns are submitted on time, even if payments cannot be made in full.

If you can offer security, organise valuations and paperwork early. Preparedness helps lenders price and decide faster.

Step 4: Pick products that align with your cash flow

Match repayment profiles to income patterns — for example, invoice finance for B2B credit terms, or a merchant cash advance for card-heavy retail. Asset refinance can create breathing space if equipment is underused. The right fit reduces the chance of missed payments.

Avoid stacking multiple short-term facilities unless you have a clear consolidation path. Complexity raises cost and risk. A single, well-structured facility is usually more sustainable.

Check for early repayment or exit fees that might limit flexibility. Transparency on costs supports better decisions.

Costs, risks, and compliance you should understand

Costs you may encounter

Pricing varies by product and risk. Invoice finance may include a service fee and discount rate tied to advance levels. Merchant cash advances quote a fixed factor cost rather than an APR, repaid as a percentage of card sales.

Asset-backed lending often provides more competitive rates than unsecured options, but includes valuation or legal fees. Specialist working capital loans can be more expensive due to higher perceived risk. Always compare total cost of finance, not just headline rates.

Ask lenders to disclose all fees, including arrangement, monitoring, non-utilisation, and early settlement charges. Clear, fair, and not misleading information helps you choose confidently.

Key risks to weigh up

If you default, secured lenders may take possession of assets used as collateral. Personal guarantees expose directors to personal liability. Consider independent legal advice before giving a guarantee.

HMRC enforcement can escalate to distraint or winding-up petitions if arrears persist. Prompt engagement and documented payment plans are essential. Funding should support a sustainable turnaround, not mask core issues.

Ensure the facility term matches the time needed to stabilise cash flow. Short terms with high repayments can strain working capital if revenues fluctuate.

Good practice and regulatory hygiene

Best Business Loans operates as an independent introducer and does not provide loans, credit decisions, or advice. Any finance is subject to provider terms, eligibility, affordability checks, and status. We aim for communications that are clear, fair, and not misleading in line with FCA principles.

This page is for general information only and is not financial, tax, or legal advice. You should seek professional advice specific to your circumstances. Lenders will conduct their own assessments and may require additional information.

When advertising or comparing finance, ensure disclosures are present and accurate. If you pursue invoice finance or other facilities, confirm whether agreements are business-only and whether consumer credit rules apply.

What documents will lenders typically request?

• Management accounts and filed annual accounts
• 3–6 months’ business bank statements
• VAT returns and HMRC correspondence (including any TTP)
• Aged debtor and creditor reports
• Details of existing finance and any security
• Business plan or cash flow forecast with assumptions

How Best Business Loans can help, FAQs, and next steps

Our role: Introductions to relevant lenders and brokers — fast

Best Business Loans helps UK companies find finance providers who understand complex situations, including HMRC or VAT arrears. We do not lend; we introduce you to suitable lenders or brokers through AI-driven matching. Submitting a Quick Quote is free and without obligation.

Our network covers invoice finance, asset refinance, merchant cash advance, secured loans, and specialist working capital. We prioritise providers who actively consider businesses with tax arrears and realistic recovery plans. You stay in control of every decision.

Explore broader options for established SMEs via our page on small business loans. You can compare potential routes and request introductions in minutes.

What to expect when you submit a Quick Quote

Step 1: Tell us about your business, arrears position, and funding goal. Step 2: Our system analyses your details and shortlists potential providers. Step 3: We connect you with suitable partners for next steps and indicative terms.

Decision speed depends on product type, documentation, and complexity. Invoice finance and merchant advances can be setup relatively quickly once approved. Secured or asset-backed facilities may take longer due to valuations and legal work.

We may receive an introducer fee from the provider if you proceed. We never sell your data, and we share it only with relevant finance professionals connected to your enquiry.

FAQs

Can I get a business loan specifically to clear HMRC arrears?

Yes, some facilities can be used to settle tax liabilities, particularly secured or asset-backed options. Lenders will expect a clear plan showing affordability after arrears are cleared. The aim is to restore compliance and stabilise cash flow sustainably.

Will a Time to Pay arrangement harm or help my application?

It often helps because it demonstrates proactive engagement and a structured plan. Keep TTP payments up-to-date and provide evidence of compliance. Missed TTP instalments may severely reduce options.

Which products are most flexible if I have VAT arrears?

Invoice finance, merchant cash advances, and asset refinance are commonly considered. Secured loans may also be viable if you can offer collateral. Standard unsecured term loans are harder with material arrears.

Do I need a personal guarantee?

Many lenders request a personal guarantee, especially for unsecured or higher-risk cases. If a guarantee is required, seek independent legal advice before signing. Alternatives include using assets or invoices as primary security.

How much will it cost?

Costs vary by product, risk, and term. Expect higher pricing where arrears elevate perceived risk. Always compare total cost including fees, not just headline rates or factor costs.

Will arrears automatically mean a decline?

No — but they narrow the field and raise scrutiny. A credible TTP, up-to-date filings, and strong trading evidence can keep viable options open. The right match of product to cash flow is critical.

Key takeaways

• You can often access finance with HMRC or VAT arrears, especially via asset-backed or revenue-backed products.
• A formal Time to Pay and on-time filings materially improve your chances.
• Prepare robust, current financials and a clear plan to prevent recurrence.
• Prioritise facilities that fit your income pattern and cash flow profile.
• Use introductions to lenders who are comfortable working with tax arrears cases.

Start your eligibility check now

If you’re managing HMRC or VAT arrears and need a practical route to stabilise cash flow, we can introduce you to specialist providers. It’s fast, secure, and without obligation to proceed. Complete your Quick Quote to see potential options for your business.

Important information

Best Business Loans is an independent introducer. We do not provide loans, credit decisions, or advice. Any introductions are subject to provider terms, eligibility, and status; your business must meet the provider’s criteria and affordability checks.

This article is general information only and not tax, legal, or financial advice. For Time to Pay and HMRC guidance, visit GOV.UK. For information on business finance schemes, see the British Business Bank.

Updated: October 2025