Many business owners, over the years, have utilised personal credit cards to settle annual business tax. Unfortunately, legislation which has been instated since January 2018, now no longer allows this method of payment.
The new EU Payment Services Directive, known as PSD2, removes the ability for merchants to charge fees to their customers for personal debit and credit card payments – and HMRC has chosen to eliminate the payment option altogether, rather than shifting the cost on to other taxpayers.
As you can imagine this might not bode well for those who, have been using the personal route as a settlement method. All is not lost; fortunately, some lenders provide products designed for tax bills.
Business credit cards
This, of course, is the most obvious solution as this method of payment is still permitted. If you were using a personal credit card, you most likely do not have a business credit card. The use of a business credit card does mean that there are fees linked to use of the business card. Perhaps you use your business credit card to manage expenses which occur regularly. This then says that should you use your business credit card, your credit card limit may be reached a lot sooner in light of paying the tax bill lump sum. If this is the case for you, there are a few other options that might be more beneficial for you.
The good news is that some funding products are specially designed for you, should you not have any capital available to settle tax or VAT bills.
One of the pros of these services is that many will make the payment directly to the HMRC which means that you need not worry about incurring any late or missed payment penalties. These loans are structured depending on what kind of tax you need to pay. Generally, you would get a term between three and 12 months. Should the need be to settle corporation tax, it would be beneficial to look at 12 months. Shorter terms are better suited for VAT payments as they happen quarterly.
Whichever option you are looking at, funding gives you the opportunity to spread the repayment out, over manageable and affordable installments.
In other instances, the lender will give you a classic business loan for working capital reasons, and you then get to use the funds as it suits. What is important to note is that as a business owner you should be very honest about what the loan is needed for. The good news is that finance to pay off tax bills is no longer as frowned upon as it used to be.
Unlock your invoices:
A significant factor and often a hindrance in cash flow is customer invoice payment. If this is the case for you as a business owner, invoice finance may be the right solution for you. There are two options available.
- You retain all the customer contact and manage the debt collection and credit control. Funds are then made available by the lender based on the total invoice amount. Once the invoice has been paid and the payment lodged, the remaining balance – less any charges that may be applicable – will be released to you.
- This means that the management of the sales ledger and credit control is managed by the lender. This removes the burden of administrating your sales ledger freeing you up to run your business. Once the invoice is sent to the lender, they will advance the funds to you. The third party will then make the payment into your account. They will also manage your debtors to ensure that the invoice is paid up. Once this payment is made, they will then pay the remainder to you less the figure loaned to you and any fees that may apply.
Merchant Cash Advance
This medium calculates your sales from previous card transactions and allows you to lend against it. This will be repaid as a percentage of your monthly earnings. The great thing about Merchant Cash Advance is that they do not provide you with an interest rate. Instead, a percentage is agreed upon upfront, which is settled in addition to the money the lender has given you. This means that there is no need to worry about fluctuations and you are fully aware of the full settlement figure upfront.
Bear in mind that the duration at which you will pay off the amount will depend on your monthly sales, as the repayment is built on a percentage thereof, i.e. the more you sell, the faster you can pay it off. In addition, you need not to worry about late or missed payments as the lender works directly with the payment provider to get repayments from the source.
Be wary though, that this kind of funding does tend to be a bit more expensive. For the convenience of “set and forget” it does come at a price.
As many business owners know, tax bills can cause a lot of stress and anxiety. It is really important when approaching institutions for finance, that you be honest about what you are needing it for. As a business, it is no longer taboo to rely on funding to settle tax bills, which means it makes the process that much simpler and easier to ensure that you make the right choice for you and your business.