When securing finance for vehicles, plant and machinery under hire purchase terms there is normally the requirement for a substantial initial cash outlay on the part of the customer. The impact of this cash outlay, particulalry as it relates to VAT, can cause substantial difficulties and pressures for business
This will be made up of a percentage deposit on the pre VAT purchase price, anything from 5% to 30% depending on asset and age, plus the full VAT currently at 20% of the purchase price.
Whilst this VAT is fully recoverable for VAT registered businesses it is nevertheless a factor than can put severe pressure on cash flow, as the funds may be out of the customer account for as long as three months before the VAT return is submitted and paid back.
However certain finance houses offer the ability for business to defer their VAT payment for up to 3 months from the date the finance agreement begins.
This means that the 20% of purchase price cash that ordinarily needs to be found on a deal beginning on 1st September, can sit in the customer’s account until the 3rd month of the agreement, i.e. 1st December.
But that’s not all. The customer can submit their VAT claim immediately, ensuring that the VAT, that they haven’t had to pay yet, is refunded to them by HMRC as though they had. A double cash flow boost!
At month 3 of the agreement the VAT payment is then taken by the finance company along with the normal monthly payment via direct debit.
This is a simple benefit that can have a massive benefit to qualifying businesses.
We would encourage our clients where possible to take advantage of a VAT deferral as it alleviates the unnecessary problem of having to bear the cash flow pressure of having to pay what could be a substantial amount of VAT, with the knowledge that the funds will be re-paid anyway.
To secure VAT deferral finance for your business apply via our website or call 0845 3300 455.
MacManus Asset Finance are leading independent asset finance brokers and assist firms across the UK obtain competitive finance facilities.