15/05/2026
How to refinance a business loanMost business owners have a default when their tax bill arrives. They pay it in full, clear the obligation with HMRC, and move on to the next thing. It’s the responsible-feeling option, and for some businesses it’s the right one. For plenty of others, it quietly takes a chunk of working capital out of the business at the worst possible time.
A £40,000 corporation tax bill leaves your account in a single transfer. The cash gap it creates can last another two or three months. During that time, payroll feels tighter, supplier payments get watched more closely, and decisions about hiring or stock get pushed back. Then the next VAT quarter lands, or next year’s corporation tax bill comes round, and the cycle starts again.
You don’t have to pay a tax bill in one go. A corporation tax payment plan or a tax loan lets you spread the cost over six to twelve months. The lender pays HMRC on your behalf, you repay in fixed monthly instalments, and the cash stays in the business. For a fee, you keep the working capital free to do something more useful.
This guide covers when paying your tax bill in full is the right call, when spreading it makes more sense, what tax funding costs, and how to decide between the options.
How does tax funding work?
Tax funding is a short-term business loan that covers your VAT, corporation tax, or PAYE bill, repaid in fixed monthly instalments over six to twelve months. The lender pays HMRC directly on your behalf. You then repay the lender, with interest, while keeping the cash in the business.
It’s a different product to an HMRC payment plan, which we cover later in this guide. With tax funding, you stay fully compliant with HMRC from day one. The bill is treated as paid the moment the lender settles it, and there’s no late payment interest, no flag on your tax record, and no Time to Pay arrangement to negotiate.
Loans typically range from £5,000 to £500,000, depending on the size of the bill and the lender. Most are unsecured loans and approved within a few days. For larger amounts (usually over £150,000), some lenders ask for a personal guarantee.
For example: a £40,000 corporation tax bill funded over 12 months at around 9% APR works out at roughly £3,500 a month, with total interest of about £2,000 across the full term. The lender pays HMRC the £40,000 on your behalf the day the bill is due. Your business keeps the £40,000 of working capital available for the next year, and repays the loan in twelve fixed instalments.
Tax funding is most commonly used for VAT (due quarterly) and corporation tax (due nine months and one day after your year-end), but PAYE bills can be funded the same way. Some lenders will also reimburse a tax bill you’ve already paid, as long as it cleared your account in the last 30 to 45 days.
Tip: If you’d like to see what spreading a tax bill could look like for your business, our business loan calculator can help you estimate monthly repayments.
The hidden cost of paying a tax bill in full
Paying a tax bill in full has a cost most owners never put a number on. It’s what the cash would have done over the next few months if it had stayed in the business.
Take the £40,000 corporation tax bill from earlier. Once it’s paid, the £40,000 is gone, but the business still has the same payroll, the same supplier payments, and the same overheads to cover. Cash that would have funded a new hire, a stock order, or simply a comfortable buffer is now sitting with HMRC. Most owners feel this for the next eight to twelve weeks. Payroll gets watched more closely, supplier payments slow down, and the conversations about hiring or new equipment quietly get pushed to next quarter.
If that £40,000 would have funded something with a return – a new salesperson billing £8,000 a month in net new revenue, a stock order that turns over twice in the quarter, or a discount for paying a key supplier 30 days early – the lost return is what the bill really costs you. Tax funding at 9% over twelve months costs around £2,000 in interest. If the cash would have generated more than £2,000 of value over the same period, paying in full is the more expensive option.
The other thing that gets missed is the cycle. VAT bills land every three months. Corporation tax lands every twelve. PAYE every month. For a lot of SMEs, by the time working capital has rebuilt after one bill, the next is already on the way. The recovery never quite finishes.
Businesses that fund their VAT every quarter aren’t necessarily struggling. Often they’ve worked out that keeping the cash in the business and paying a fee for the privilege is more profitable than the alternative.
Read next: What is VAT finance and how does it work?
When does paying in full make sense, and when doesn’t it?
Paying your tax bill in full is the right call when the cash isn’t doing anything more useful elsewhere. If you’re sitting on healthy reserves, the bill is small relative to your monthly turnover, and there’s no growth investment, hire, or stock order queued up that the cash would unlock, the simplest option is usually the best one. There’s nothing to repay, no interest to factor in, and no application to make.
Tax funding is the better option when the cash has somewhere better to be. A business turning over £200,000 a month with a £40,000 corporation tax bill is paying around 9% in interest to keep the cash for twelve months. If that £40,000 funds a hire, a stock cycle, or a contract that returns more than the financing cost, spreading the bill leaves the business better off. The bigger the bill is relative to monthly turnover, and the more clearly the cash has a job to do, the stronger the case becomes.
HMRC’s Time to Pay arrangement is the third option, and it’s the one most owners think of first.
Time to Pay lets you spread an unpaid tax bill over a period agreed with HMRC, usually six to twelve months. It keeps you out of formal recovery action, but it’s not free. HMRC charges late payment interest at 7.75% (from 9 January 2026, set at the Bank of England base rate plus 4%) for the entire period the bill is outstanding. The arrangement is recorded against your account, which can affect future credit decisions, and it’s negotiated case by case rather than approved on standard terms.
Tax funding sits between paying in full and Time to Pay. The bill is treated as paid the moment the lender settles it with HMRC, so there’s no late payment interest, no penalty risk, and nothing flagged on your tax record. Rates from commercial lenders typically sit around 6% to 12% APR, often below HMRC’s 7.75%, and approval is faster than negotiating a Time to Pay.
Comparing your options
| Option | What it costs | How quickly you can arrange it | Effect on your HMRC record | Best for |
| Pay in full | Nothing on top of the bill | Immediate | None | Surplus cash, small bill relative to turnover, no better use for the money |
| Tax funding | ~6% to 12% APR over 6 to 12 months | A few days | None – bill treated as paid | Cash has a clear job to do, regular VAT or corp tax cycles, growth plans in motion |
| HMRC Time to Pay | 7.75% late payment interest, plus penalty risk if not arranged before deadline | 1 to 4 weeks | Recorded against your account | Genuine short-term inability to pay, no commercial finance available |
| Business overdraft | Variable rates, often 8% to 15% | Already in place, or 1 to 2 weeks to set up | None | Short bridge of a few weeks, not a full bill |
Which option fits depends on the size of the bill, how the cash would be used, and what your overall funding picture looks like. For one-off bills with surplus cash, paying in full is fine. For recurring VAT or corporation tax cycles where the cash has a clear job to do, tax funding usually works out cheaper than the alternatives. Time to Pay is best treated as a fallback rather than a first move, because of the cost and the record it leaves.
How we approach tax funding at Greenwood
Greenwood Capital is a commercial finance broker. We work with a panel of specialist tax funding lenders and match each client to the right option based on the size of the bill, the trading position of the business, and what’s needed by when.
Most tax funding deals we arrange are unsecured. For loans under £150,000, lenders typically don’t require a personal guarantee. Above that, terms vary by lender and case. Approval usually takes a few days from receiving the documents, and lenders can lock in a deal up to 30 days before the deadline for VAT and 45 days before for corporation tax. Booking earlier in the cycle gives you more lender options and avoids the rush around month-end.
To put a proposal together, we usually need your latest filed accounts, three months of business bank statements, management information dated within the last three months (P&L and balance sheet), and proof of the tax liability, such as a VAT return or corporation tax computation. If a Time to Pay arrangement is already in place and being kept to, that doesn’t rule out tax funding, but we’ll need the full details.
If you’ve already paid a corporation tax or VAT bill in the last 30 to 45 days, some lenders will reimburse it. The cash comes back into the business and you repay the lender over the agreed term. It’s an option that’s easy to miss, and a useful one if you’ve recently paid a bill that’s left cashflow tighter than expected.