A guide to VAT loans for solicitors
We take a look at the HMRC rules for solicitors on VAT. We dive into how short-term finance can cover costs to protect your business’s cash flow.
VAT is chargeable against legal services in the UK if:
- A firm registers for VAT purposes.
- Supply of particular legal services to the client is subject to VAT
From late 2024, solicitors must register for VAT if their total taxable turnover in the last 12 months exceeds £90,000 or if it is expected to surpass £90,000 within the next 30 days. Learn more about VAT registration directly with HMRC here.
There are two types of VAT to consider as a legal firm. These include input VAT and output VAT. Businesses incur input VAT when making purchases, while they charge output VAT on the sale of legal services to consumers and businesses.
Input VAT is classed as an expense, meaning you’re able to reclaim it. Quarterly, practices must pay HMRC the difference between the output tax charged, and the input tax paid on your purchases, which can often result in an unwelcome bill with a payment deadline to meet.
Avoiding late payment
HMRC allows some time at the end of each quarter before a practice must pay the VAT due. VAT returns will show the payment deadline date, but you can also use the Government’s VAT deadline calculator.
HMRC made £346m in interest from taxpayers who paid late or arranged a “Time to Pay” payment plan in the year to October 2023 – a record amount and more than double the £159m it made the year prior.
As a legal firm, you might be delaying your VAT bill payment if you’re waiting longer to receive payment from clients. Clients pay late, leaving your practice to cover VAT on those invoices even with reduced cash flow, which often creates short-term cash flow pinch points
Essential obligation should not have to compete with a practice’s plans for growth, nor should it have any significant impact on cash flow. While careful financial planning can help avoid difficult times, we understand that sometimes things just don’t go to plan. That’s why considering a short-term loan or business finance can help ease the pressure of your VAT bill.
Short-term loan to finance your VAT bill
When working capital volumes don’t permit, practices may need to consider alternative sources to fulfil these costs. Invoice Finance or VAT Loans for solicitors are one such way of funding this expense and are becoming increasingly popular amongst legal firms.
At White Oak UK, we continue to see year-on-year increases in the number of practices choosing VAT finance. We’ve even documented a recent VAT loan process whereby a mid-sized legal firm that we have been working with since 2012 approached us for assistance with their VAT and Corporation Tax liabilities.
Legal practices can choose for payments to be made directly to HMRC on their behalf. Alternatively, it can go to their account. Ultimately, a loan frees up capital for other practice requirements. We spread the cost over 3 months and offer a quarterly facility to meet these ongoing costs.
Get a free finance quote for your tax bill
We pride ourselves on offering fast, flexible and tailor-made finance solutions for businesses in the legal sector. Find out how VAT loans for solicitors can benefit your practice by calling us on 01244 527300, emailing admin@whiteoakuk.com or visiting our online chat to speak to a member of our team.
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