Picture this.
You’ve faced a sudden VAT assessment, corporation tax demand, or self-assessment bill that’s higher than anticipated.
The trouble is that you don’t currently have enough cash to pay it.
What makes these situations worse is the snowball effect of failing to pay promptly: escalating penalties, daily interest charges, potential legal action, and damage to your business reputation.
Many people don’t realise there are specific financing options available that can help in these situations. Business bridging finance offers a quick and effective way to manage unexpected tax demands, providing breathing space while you arrange longer-term solutions.
Understanding Tax Demands
Tax demands in the UK come in various forms, and understanding them is the first step in addressing the problem.
Common tax liabilities include VAT, which is due quarterly for most businesses; Self-Assessment payments, with main deadlines in January and July; Corporation Tax, usually due nine months after your company’s year end.
When HMRC issues a demand, they expect quick payment. For unexpected demands following an investigation or audit, payment deadlines can be as short as 30 days. If you miss these deadlines, the consequences escalate quickly.
How Bridging Finance Tackles Tax Bills
Bridging finance is a short-term loan designed to cover a funding gap until a longer-term solution becomes available.
Bridging loans can be set up within days – perfect for time-sensitive tax demands.
When used for tax liabilities, business bridging finance provides immediate funds to pay HMRC, giving you breathing space to arrange more permanent financing or generate the cash to repay the loan.
For many companies cashflow is the main issue, bridge loans can be used to provide cash on a temporary basis until that large customer invoice is settled.
These loans are secured against property or other assets, which allows for faster approval and higher loan amounts than unsecured lending.
Eligibility
Short-term bridging loans can be secured against residential properties, commercial buildings, investment properties, or land.
The amount you can borrow is based on the value of the security – lenders will consider the loan-to-value ratio (LTV), which for tax-related bridging is usually up to 70-75% of the property value.
You won’t normally be expected to make any monthly repayments. At the end of the term you need to repay the amount borrowed, plus the accrued interest and fees.
One common question is whether bridging finance is really suitable for tax purposes. The answer is yes, lenders recognise tax liabilities as a legitimate reason for bridging finance, particularly when there’s a clear plan for repayment.
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Types of Bridging Finance for Tax Liabilities
When considering bridging finance for tax demands, you’ll encounter several options, each suited to different circumstances.
First vs Second Charge Loans
First charge bridging loans are used when the property concerned has no existing mortgage or is being purchased.
They’re often the simplest to arrange and offer better interest rates as the lender has first claim on the property if you can’t repay.
Second charge loans are arranged when there’s already a mortgage on the property.
These allow you to use the equity in your property without disturbing your existing mortgage arrangements.
Read more: Legal Charges: Your Guide to Bridging Loan Security
Open vs Closed Loans
The distinction between ‘open’ and ‘closed’ bridging loans is linked to the exit strategy, or how the loan will be repaid.
Closed bridging loans have a fixed end date, usually when you know exactly when funds will be available to repay (such as from a property sale with a completion date). Open bridging loans have no fixed end date, offering more flexibility when your repayment timeline is less certain.
Related: How Do You Pay Back a Bridging Loan?
Regulated vs Unregulated Loans
If you’re using your main residence as security, you’ll need a regulated bridging loan, which offers additional consumer protections. Loans secured against investment properties or commercial buildings are usually unregulated.
Read more: Regulated vs Unregulated Bridging Loans
Who Can Benefit from Tax Bridging Loans?
Using bridging finance to help with tax liabilities suits several distinct groups of people, each with their own specific challenges around tax payments.
Business Owners
Business owners and directors can face unexpected tax demands, particularly after HMRC investigations or changes in tax rules.
These sudden bills can create significant pressure on cash flow, especially when they weren’t budgeted for. Business bridging loans provide immediate funds to satisfy the HMRC demand while allowing the business to make necessary operational adjustments or wait for scheduled income to arrive.
Self-Employed Professionals
Self-employed professionals can be caught out by larger-than-expected self-assessment tax bills, especially when business has been good but cash flow is tight.
This situation is common because profits might be strong on paper while actual cash availability is limited due to unpaid invoices or reinvestment in the business. Bridging finance secured against property assets gives these professionals time to collect outstanding payments without incurring HMRC penalties.
Property Investors
Property investors often need quick finance for Capital Gains Tax after profitable property sales. When multiple disposals occur in the same tax year, the resulting tax liability can be substantial. Bridging loans allow investors to meet tax obligations promptly while arranging more advantageous exit strategies, such as planned property sales or refinancing arrangements.
Seasonal Businesses
Companies with seasonal income can struggle with tax payments that fall during their quieter periods.
When tax deadlines don’t align with peak revenue months, cash flow challenges can arise even in profitable businesses. Bridging finance offers a solution by covering tax obligations during low-revenue periods, with repayment structured to coincide with the business’s high-income season.
Counting the Cost
Understanding the full cost picture is essential when considering any type of borrowing. Bridging loans involve several different fees and charges that contribute to the overall cost.
Cost Components
The main cost components include:
- Interest rate: Quoted monthly (ranging from 0.5% to 1.5% per month)
- Arrangement fees: Typically 2% of the loan amount
- Valuation fees: For assessing the security property
- Legal fees: For both your solicitor and the lender’s solicitor
- Exit fees: Sometimes charged when you repay the loan
Interest Structure Options
Interest can be structured in different ways:
- Monthly serviced: You pay the interest each month
- Rolled-up: Nothing is paid monthly, but the interest accumulates and is paid along with the principal at the end
- Retained: Interest for a set period is calculated upfront and held back from the loan advance
The options available to you will be affected by the lender and your LTV.
Read more: How Bridging Loan Interest is Calculated and Charged
Bridging vs HMRC Penalties
When comparing costs against HMRC penalties and interest, bridging finance can often work out cheaper for larger tax bills or longer payment delays.
For example, a £100,000 VAT bill left unpaid for six months could attract penalties of £15,000 plus HMRC interest. A bridging loan might cost around £8,000-£12,000 in total for the same period, depending on specific terms.
Cost Minimisation Strategies
To minimise costs, consider:
- Using a broker to access the most competitive rates
- Keeping the loan term as short as realistically possible
- Exploring whether a lower LTV can secure better rates
- Comparing different interest structures to find what works best for your cash flow
- Negotiating on arrangement and exit fees, which can sometimes be flexible
The true cost of a bridging loan isn’t just the headline interest rate – it’s the combination of all fees and charges over the life of the loan.
Alternatives
Before committing to short-term finance, it’s worth exploring the alternatives, as different options suit different circumstances.
HMRC Time to Pay Arrangements
HMRC’s Time to Pay arrangement is often the first option to consider.
This is an instalment plan negotiated directly with HMRC, allowing you to spread tax payments over a period that’s manageable for your finances – usually 6-12 months. To apply, you’ll need to call HMRC’s Payment Support Service, explain your situation, and propose a payment plan.
HMRC will assess your financial position and may ask for detailed information about your income, expenses, assets, and liabilities.
Time to Pay arrangements can be an excellent solution if your cash flow issues are temporary and you can afford regular payments. However, HMRC isn’t obligated to agree to these arrangements, particularly for larger amounts or if you’ve had payment issues in the past.
Business Loans
Business loans might be suitable if you have time to arrange one before the payment deadline. These have lower interest rates than bridging loans but take longer to arrange. They’re better for planned tax payments rather than unexpected demands with tight deadlines.
You will also need to demonstrate to the lender that the monthly repayments are affordable.
Remortgaging
Remortgaging can release equity from property at competitive interest rates, but the process usually takes 4-6 weeks – too slow for urgent tax demands. This might be suitable if you have advance warning of a tax liability.
Director’s Loans
Director’s loans to your company can be a quick solution if you have personal funds available. This approach avoids external financing costs but requires careful documentation to satisfy both HMRC and Companies House requirements.
You could also borrow the money personally, and then transfer the money to your company as a directors loan.
Short-Term Credit Facilities
Using business overdrafts or credit cards might work for smaller tax bills, but the interest rates can be high for larger amounts or longer periods. These should generally be considered short-term solutions only.
Related: How to Access Capital Quickly Without Using Credit Cards or Overdrafts
Paying the Loan Back
With any bridging loan, planning your exit strategy is absolutely essential.
The exit strategy is your plan for repaying the loan, and lenders will scrutinise this carefully before approving your application.
For tax-related bridging, your exit strategy needs to be particularly solid because you’re not creating an asset that can be sold to repay the loan – you’re using the funds to pay a tax liability.
This means your repayment will need to come from other sources.
Common Exit Strategies
Common exit strategies for tax-related bridging include:
- Refinancing to a longer-term business loan once there’s time to arrange this
- Using upcoming business income or receivables that aren’t yet available
- Selling assets such as property or business equipment
- Expected investment or funds from shareholders
Making Your Strategy Convincing
Your exit strategy needs to be realistic, detailed and evidenced.
If you’re planning to refinance, you might need to show you’ve already had initial discussions with lenders. If your exit depends on business income, detailed cash flow forecasts will be required. For asset sales, evidence of marketing or even provisional agreements can strengthen your case.
Backup Plans
Lenders understand that exit strategies sometimes fail, so they’ll also want to see contingency plans. What will you do if your primary exit strategy doesn’t work out? Having a backup plan can make the difference between approval and rejection.
The level of detail required for your exit strategy depends on your circumstances and the loan amount. Larger loans, and high LTV loans, will need more comprehensive plans, while smaller amounts might require less detailed explanations if your financial position is strong.
How Specialist Brokers Can Help
Securing bridging finance for tax bills can be challenging, particularly if you’re new to this type of borrowing. This is where specialist brokers can add significant value.
Access to Specialist Lenders
Brokers bring access to a wide range of lenders, many of whom don’t deal directly with the public. This includes specialist lenders who understand tax-related cases and are comfortable with quick turnarounds.
A good broker will know exactly which lenders to approach for your specific situation, saving valuable time when dealing with HMRC deadlines.
Expert Presentation
Tax-related bridging cases often have complexities that require careful presentation to lenders. Brokers know how to structure your application to highlight strengths and address potential concerns.
Speed Advantage
The speed advantage is particularly valuable for tax related situations. Brokers with established lender relationships can fast-track applications through decision processes, reducing approval times.
Better Terms
Brokers also negotiate better terms than might be available directly. Their knowledge of current market rates and lender appetites allows them to secure competitive interest rates and fee structures.
Solutions for Complex Cases
For complex situations, such as mixed-use properties or cases with credit issues, brokers can find specialist lenders who take a more flexible approach. They can also advise on improving your application’s chances of success, from strengthening your exit strategy to selecting the most appropriate security.
Working With Us
Bridging Finance London specialises in arranging finance for time-sensitive situations like tax demands. Our team has handled numerous tax-related cases, building specific expertise in this area.
Our network of over 250 lenders includes those who specialise in tax-related bridging, including private banks and high-net-worth individuals who lend their own funds. This diverse lending panel means we can find solutions for almost any tax-related scenario, even when mainstream lenders decline.
The Bridging Finance London Approach
The process begins with an initial consultation to understand your specific tax situation, available security, and timeframes. Our experts then approach the most suitable lenders, often securing initial terms within 24 hours.
Our close lender relationships mean we can negotiate competitive terms and expedite the application process.
Hands-On Support
Rather than simply submitting applications, we work closely with lenders throughout the process, addressing questions and overcoming obstacles as they arise.
For tax-related bridging, where time is critical, this proactive approach can make the difference between success and failure.
Our support continues throughout the loan term, with guidance on refinancing options and assistance with implementing your exit strategy. This ongoing service ensures you’re not left on your own once the initial tax problem is solved.
Interested? Please call us on 020 3951 2828 to get started.
FAQ
With the right broker and documentation, bridging finance can be arranged in as little as 7-10 days. In urgent cases, some specialist lenders can complete in just a few days. The speed depends on the property valuation, legal work, and how quickly you can provide the required documentation.
Bridging finance can help with any type of UK tax liability, including VAT, Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax, and PAYE/National Insurance contributions. The loan can be used regardless of whether the tax demand is routine or the result of an HMRC investigation or audit.
Read more: VAT Bridging Loans
Bridging loans are secured against property, so you’ll need to own property with sufficient equity to secure the loan. This can be residential, commercial, or investment property. The amount you can borrow will depend on the value of the property and any existing mortgages or charges against it.
Read more: What is a Bridging Loan Secured Against?
Yes, it’s possible to get a bridging loan for tax liabilities even with less-than-perfect credit. Bridging lenders focus more on the security property and your exit strategy than your credit history. However, very serious credit issues may affect the interest rate offered or require additional security.
Related: Do You Need a Good Credit Score for a Bridging Loan?
Yes, second charge bridging loans are specifically designed for situations where there’s already a mortgage on the property. This allows you to access the equity in your property without disturbing your existing mortgage arrangements, which can be particularly useful if you have a competitive rate or would face early repayment charges.
Yes, most bridging loans can be repaid early, often without penalties. Some lenders do charge exit fees or have minimum interest periods (e.g., three months), so check the terms carefully. Early repayment will reduce the total interest paid, making it cost-effective if you can arrange funds sooner than expected.
Yes, you’ll need a solicitor to handle the legal aspects of the bridging loan. The lender will also have their own solicitor. For tax-related bridging where speed is essential, it’s best to use a solicitor with experience in bridging finance who understands the urgency and can work to tight deadlines.
Related:
Absolutely.
Applicants can be: individuals, partnerships, LLP, limited companies including property SPV’s.
Read more: Bridging Loans for Limited Companies
