Corporation tax loans

Corporation tax loans let a limited company pay HMRC in full on the due date and repay a lender in instalments afterwards. Because corporation tax is calculated from the accounts, the process usually starts once your accountant has the final figure.

1. Confirm the liability. Your accountant prepares the corporation tax computation and tells you the amount and payment date.
2. Plan ahead. With most companies paying nine months and one day after the year end, there is usually time to arrange funding without a rush, so start the conversation well before the deadline.
3. Lender assessment. The lender reviews the computation, the latest accounts, bank statements and credit records.
4. Offer. If approved, the lender sets out the amount, term, monthly repayment and total repayable, and usually asks for a director's personal guarantee.
5. Pay HMRC. Funds go to HMRC, either directly or via your business account, using the company's corporation tax payment reference.
6. Repay the lender. The company repays in fixed monthly instalments over the agreed term.

Note that the corporation tax payment deadline normally falls before the return filing deadline. If your accountant is still finalising figures, ask them for a reliable estimate so funding can be arranged in time.

Tax bill loans most often cover corporation tax for limited companies and PAYE for employers, including companies, LLPs and partnerships of four or more partners. Each works slightly differently.

• Corporation tax: paid by limited companies on their taxable profits. LLPs and partnerships do not pay corporation tax; their members or partners are taxed personally, and we do not arrange finance for personal tax bills.
• PAYE and employer National Insurance: deductions from staff pay that employers send to HMRC, usually monthly. For electronic payments, the deadline is normally the 22nd of the month after the tax month ends.
• Combined tax funding: some lenders will fund a corporation tax bill and a PAYE payment together where both fall due close together.
• Year-end liabilities: a lump sum that combines several business tax payments falling at the same point.

VAT has its own dedicated product. See VAT loans for how lenders fund quarterly VAT bills.

The cost is the lender's interest or fixed charge plus any fees, and the useful figure is the total repayable. That should be weighed against what HMRC would charge if the tax were paid late or spread through Time to Pay.

• Interest or fixed charge: usually agreed upfront for short tax loans, so the total cost is known from the start.
• Arrangement fee: charged by some lenders, either deducted from the advance or added to the balance.
• Early repayment terms: check whether clearing the loan early reduces the charge.
• Default charges: extra costs if a monthly repayment is missed.

Lenders price tax loans on the size of the bill, the term, turnover, profitability, credit history and the company's record with HMRC. A company paying corporation tax has, by definition, made a taxable profit, which can help the lender's view of affordability.

On the HMRC side, late payment interest on corporation tax and PAYE is charged at the Bank of England base rate plus 4%. PAYE also has its own late payment penalty rules, which can depend on how many payments have been late in the tax year. Your accountant can confirm what would apply to your company.

Illustrative example only: actual costs depend on the lender and your circumstances.

A hypothetical professional services company has a corporation tax bill of £80,000. It takes a ten-month loan with monthly repayments of £8,600, including the lender's arrangement fee.

• Total repayments: £8,600 x 10 = £86,000
• Total cost of credit: £86,000 minus £80,000 = £6,000
• HMRC is paid £80,000 in full on the due date

Before borrowing, the company would compare the £6,000 with the interest HMRC would charge on a Time to Pay arrangement over a similar period, and decide whether keeping HMRC paid in full is worth the difference. The answer depends on rates at the time.

Lenders typically fund up to the tax amount due, as long as the monthly repayments are affordable. The liability caps the loan, and cash flow decides whether the full amount is realistic.

Lenders check the latest accounts, current trading in bank statements and existing debts. Because the corporation tax bill relates to profits already made, they also look at whether that cash has since been spent elsewhere, for example on dividends or equipment. For PAYE, they consider whether payroll is stable and covered by regular income. If the full amount looks stretching, the lender may offer part of the bill or a longer term within its limits.

HMRC Time to Pay lets a business spread a tax debt it cannot pay in full, with interest charged by HMRC. It is a genuine alternative to a corporation tax loan, and for some companies it will be the better choice.

• Cost: HMRC interest at base rate plus 4% applies to the outstanding tax. Compare that with the lender's total charge for the same period.
• Approval: Time to Pay is at HMRC's discretion and depends on your circumstances. A loan depends on a lender's credit decision.
• Conditions: HMRC usually expects other tax to be kept up to date while an arrangement runs.
• Personal exposure: Time to Pay does not normally involve a personal guarantee, whereas tax bill loans often do.
• Timing: contacting HMRC before the deadline is generally better than after it.

We will explain both routes plainly, and if Time to Pay looks more suitable we will tell you.

The main risk is using borrowing to cover a tax bill that reflects a deeper cash shortfall, so that next year's bill arrives before this year's loan is repaid. Check these points before you sign.

• Overlap with the next liability: for PAYE especially, new payments fall due every month while you repay the loan.
• Personal guarantees: understand what each director or partner could be liable for.
• Restricted use: some lenders require the funds to be paid only to HMRC.
• Default clauses: what triggers a demand for full repayment and what extra costs apply.
• Provisioning for next year: setting aside a monthly tax reserve can reduce the need for repeat borrowing.

A tax bill loan suits a single, known liability. If tax pressure is part of a wider cash flow issue, other products may help more.

• Working capital finance: covers tax alongside wages, stock and other costs, useful where several pressures fall together.
• Unsecured business loans: longer terms for larger amounts, though using long-term borrowing for annual tax can build up debt.
• Invoice discounting: can unlock cash from unpaid customer invoices, helping B2B companies whose tax falls due before customers pay.

It depends on the lender. A company with a corporation tax bill is profitable on paper, which can help, but lenders still look at credit history, trading length and current cash flow.

Resolved credit problems may be acceptable to some lenders on our panel, while recent defaults narrow the options. Companies with a short trading history may be offered smaller amounts or shorter terms. If the company already has tax arrears or an existing Time to Pay arrangement, tell us at the start so we can approach lenders that consider those situations.

Tax bill loans to limited companies, LLPs and partnerships of four or more partners are generally unregulated, and Consumer Credit Act protections generally do not apply. The agreement and any guarantee set out your rights.

Welcome Finance is not authorised or regulated by the FCA and arranges unregulated business finance only. Read every document, ask questions about anything unclear and take independent advice from your accountant or a solicitor. Our guide to regulated vs unregulated business finance explains what this means.

Your dedicated relationship manager, a real person available by phone, email and chat, works to your HMRC deadline from first enquiry until the lender pays.

1. Check eligibility in about 60 seconds without affecting your credit score.
2. Share the tax type, amount, deadline and supporting documents.
3. We find suitable lenders on our panel and talk through Time to Pay where relevant.
4. When you decide to apply, the lender runs its own credit checks.
5. We review the offer with you, including the total repayable and any guarantee.
6. We stay in touch until HMRC is paid.

We do not charge your company a fee. We are paid a commission by the lender when the finance completes, you can ask how much it is, and it can differ between lenders. Read how we are paid.

Can an LLP get a corporation tax loan?

No, because LLPs do not pay corporation tax. LLPs and partnerships of four or more partners can, however, apply for funding for business tax such as PAYE.

Can a tax loan cover several months of PAYE?

Some lenders will fund a PAYE balance that covers more than one month, though they will want to understand why it built up.

Can a lender fund a corporation tax bill before the accounts are finalised?

Some may work from an accountant's estimate, but most prefer the final computation. An estimate letter from your accountant can help.

Does paying tax with a loan affect future tax?

Ask your accountant about the tax treatment of finance costs. It varies with your circumstances.

Can I use a tax loan to clear an HMRC debt that is already overdue?

Some lenders will consider overdue tax, depending on the amount and history. Contact HMRC as well, as interest keeps running until it is paid.

How long before the deadline should I apply?

Ideally three to four weeks, so there is time for checks. Shorter timescales may be possible but leave less room for problems.

What if HMRC changes the amount due?

Tell us immediately. The lender may need to adjust the offer, or you may need to fund the difference from cash.

Is a tax loan a sign of financial trouble?

Not necessarily. Many profitable companies prefer to keep cash for trading. Repeated reliance on tax loans, though, is worth discussing with your accountant.