Can I get a business loan with VAT or PAYE arrears?

HMRC arrears are one of the most common things a broker sees on a business bank statement. A VAT quarter paid late, a PAYE month skipped to cover wages, a corporation tax bill that arrived after a slow summer. Lenders see them too, and the honest position is that arrears change which lenders will look at you and what they will charge, but they rarely rule out finance altogether. Which lender types will still consider a business with VAT or PAYE arrears, how an open Time to Pay arrangement is treated, how a loan to clear arrears is priced with a worked example in pounds, whether invoice finance can pay an HMRC debt, and what the Budget 2026 measure on taking tax debts from bank accounts actually says are all covered below. Smart Funding Solutions is a broker, not a lender. We arrange and source business finance across the whole market from £10,000 to £20 million, including HMRC tax loans from lenders that are used to seeing arrears.

01Can I get a business loan with VAT or PAYE arrears?

In most cases, yes, provided the arrears are explained, the business is trading, and the loan either clears them or sits comfortably alongside a plan that does. Lenders treat tax arrears as a signal, not a verdict. What the signal says depends on three things. How much is owed against turnover, because £8,000 of VAT behind on a £600,000 turnover business reads very differently from £60,000 on the same business. How old the debt is and whether it is growing, because a bill missed last quarter with a plan in place is a cash flow blip, while arrears that have built up over three quarters are a trading problem. And whether you went to HMRC first, because a business that agreed instalments before HMRC chased it shows the kind of control an underwriter wants to see. Our guide to how lenders assess business loan applications explains how those judgements are made.

The arrears will be visible. Late payment interest and penalties show on your HMRC account, a Time to Pay direct debit shows on the bank statements every lender reads, and most application forms ask directly whether the business owes HMRC anything overdue. Lenders decline the applications where they find arrears the borrower did not mention far more often than the ones where arrears are declared with a reason and a plan. Declare them, attach your HMRC statement, and say what the money is for. Our page on bad credit business loans covers the wider picture where arrears sit alongside missed payments or a judgment.

02Which lenders will still look at a business with HMRC arrears?

A broker's view, lender by lender type rather than by name, because each lender sets its own criteria and changes them.

• High street banks. Mostly not. A bank's credit policy usually treats overdue HMRC debt as a hard stop for new unsecured lending, and an overdraft review can go the wrong way once arrears appear. A bank decline is not a market decline, though. Our guide to what to do after a business loan is declined covers the next steps.
• Specialist unsecured lenders. A good number will consider arrears where a Time to Pay plan is in place and being paid, or where the loan clears HMRC at drawdown. They lend on bank statements and current trading rather than on a spotless record, and the rate reflects that. See unsecured business loans.
• Tax funding lenders. A VAT loan, PAYE loan or corporation tax loan is designed to pay HMRC directly. These lenders are at their most comfortable paying a bill before the due date, and several will also clear a recent missed payment, usually with the funds sent straight to HMRC rather than to you.
• Merchant cash advance providers. For a shop, bar, restaurant or salon taking card payments, a merchant cash advance is repaid as a share of card takings, and the provider looks at the last few months of terminal statements more than at HMRC. Arrears are commonly accepted where takings support the repayment.
• Invoice finance providers. They fund against invoices to your customers, so the strength of your debtor book carries the decision. Many will fund a business with arrears and will pay HMRC from the first advance. See the invoice finance hub.
• Secured and asset based lenders. Property or equipment as security opens up lenders that will not lend unsecured to a business with arrears, and the rate is lower for it. See secured business loans, and asset refinancing can release cash from vehicles and machinery you already own.

Two things close the door with almost every lender. Arrears that are still growing while you apply, because the lender is being asked to fund a hole that is getting bigger. And a winding-up petition from HMRC, which most lenders treat as the end of the conversation until it is dismissed or the business has gone through a formal process. Our guide to a business loan after a previous liquidation covers what happens after that point.

03Can I get a business loan while on an HMRC Time to Pay arrangement?

Yes, and an arrangement that is being paid on time is usually a help rather than a hindrance. It shows HMRC has looked at your figures and agreed the business can afford the instalments, and it turns an open ended debt into a fixed monthly cost a lender can put into its affordability sums. GOV.UK says that before HMRC agrees instalments for a company tax debt it expects the company to reduce the debt as much as possible first, and may ask directors to put in personal funds, accept lending or extend credit. In other words HMRC itself expects some businesses to borrow in order to pay, which is why lenders are not surprised to be asked.

Lenders split into three camps on an open arrangement. Some decline any business with one, full stop. Some will lend alongside it, as long as the instalments plus the new repayment fit the bank statements. And some will lend specifically to clear it, paying HMRC in full and replacing the arrangement with one loan. Our comparison of Time to Pay versus a tax loan sets out when each route wins on cost and when it is better to leave the arrangement alone. The points that decide it are the same across lenders. Every instalment paid on the day, HMRC's written confirmation of the plan, no second plan stacked on the first, and current trading that shows the business is now making money rather than just surviving.

What hurts is a broken arrangement. A missed instalment can cancel the plan, and HMRC becomes far less willing to agree another, and the lender now sees arrears plus a failed promise to pay them. If you can see a payment coming that you cannot meet, speak to HMRC before the date and, if the gap is a one off, ask a broker whether a short loan or a revolving credit facility would bridge it. Keeping the arrangement intact is worth more to your next application than almost anything else.

A broker's view, lender by lender type rather than by name, because each lender sets its own criteria and changes them.

04How is a loan to clear HMRC arrears priced?

For the risk, and against HMRC's own charge. The lender prices on your trading figures, the size of the arrears, how long they have been there, the term and whether there is security or a personal guarantee. A business with arrears will usually be quoted above the middle of the market. HMRC, for its part, charges late payment interest on an unpaid balance until it is cleared, including while a Time to Pay plan runs. GOV.UK's HMRC interest rates page gives the late payment rate as 7.75% from 9 January 2026, set at Bank of England base rate plus 4 percentage points. That is the number a loan to clear arrears has to beat, or has to justify on grounds other than cost.

Take a wholesaler with £33,000 owed to HMRC, £24,000 of VAT from the last quarter and £9,000 of PAYE, plus £17,000 of stock it needs to buy for the Christmas trade. It wants £50,000 over three years. Our business loan cost guide works a £50,000 unsecured loan over three years at the median starting rate on our panel of 15%, which gives a monthly payment of £1,733 and total interest of £12,398, so £62,398 repaid in all. At the upper quartile starting rate of 21.5%, which is closer to where a business with arrears may be quoted, the payment is £1,897 a month and the interest £18,278. Add a 3% arrangement fee and another £1,500 goes on the cost. The figures are illustrations from published ranges, and each lender sets its own rate on your own numbers.

Now the alternative. If HMRC agreed to take the £33,000 over 12 months, the instalments would be £2,750 a month and the interest at 7.75% on a falling balance would come to about £1,400 over the year. On cost alone the arrangement wins by a wide margin. The loan wins when HMRC will not agree a plan, when the instalments HMRC wants are more than the business can pay each month, when the arrears are blocking other finance or a sale, or when the business needs the stock money as well and cannot get it anywhere while the arrears sit on the file. A broker's job is to put both sets of numbers in front of you, including the total repaid, and let you choose. Our business finance rate index shows the ranges behind these figures, and our glossary explains the terms lenders use.

05Can invoice finance be used to pay an HMRC debt?

Yes. Invoice finance releases cash tied up in unpaid invoices, and the lender does not usually restrict what the first advance is spent on. For a business that sells to other businesses on 30 to 90 day terms, it is often the best fit for tax arrears, because the problem that created the arrears, customers paying slowly, is the problem invoice finance solves. On a £150,000 sales ledger an advance of 70% to 90% of the invoice value, with the higher end for strong debtor books, is typical, which can clear a VAT or PAYE debt in one go and leave a facility that grows with sales. Our guide to how much invoice finance costs explains the service fee and discount charge.

• Invoice factoring. The lender advances against the whole ledger and collects the invoices. Suits a business whose arrears came from chasing payments late.
• Invoice discounting. The same advance, but you keep collecting and your customers need not know. Suits an established business with its own credit control.
• Selective invoice finance. One or a few large invoices funded to clear one HMRC bill, with no long contract. Suits a one off shortfall.

Two cautions. An invoice finance lender will usually want HMRC paid from the first drawdown, and some will pay HMRC directly, because HMRC ranks ahead of floating charge holders for VAT and PAYE in a liquidation and could petition against the business they are funding. And the sectors where arrears are most common are the sectors where invoice finance is most specialised. Construction finance handles retentions and applications for payment, and recruitment finance funds weekly contractor payroll before clients pay, which is exactly where PAYE arrears tend to begin.

06Why clear arrears before they become a winding-up petition?

Because the options narrow at every stage, and the last stage removes most of them. GOV.UK sets out what HMRC can do if you do not contact it or refuse to pay. It can pass the debt to a debt collection agency, take things you own and sell them, or take money directly from a bank account or building society savings, both in England, Wales or Northern Ireland, take you to court, make you bankrupt, and close down your company if the tax is a business tax. Costs such as auction fees are normally added to the debt, and HMRC says it will tell you before taking any of these actions.

From a finance point of view, each step costs you lenders. A debt collection agency letter on file worries an underwriter. Enforcement action against goods removes the equipment a lender might have refinanced. A winding-up petition is advertised, the bank will usually freeze the account when it sees the advertisement, and almost no lender will fund a company with a live petition. Our report on the NAO's findings on HMRC tax debt shows how much older debt HMRC is now chasing, and the monthly insolvency figures show where that ends for some businesses. Arrears dealt with in the first quarter they appear are a cash flow conversation. The same arrears a year later are a solvency conversation.

07Will HMRC take money straight from my business bank account for unpaid tax?

It already can, for established debts where you have not engaged, and the Budget of October 2026 adds a new, more automated power for smaller debts. The existing position is the one above. GOV.UK lists taking money directly from a bank account among the actions HMRC can take if you do not contact it or refuse to pay, with the promise that it tells you first.

The new measure is different in kind. The Treasury's Budget 2026 factsheet on tackling lower value tax debts says the government will continue developing a power to recover established lower value tax debts through regular deductions from bank accounts. It applies to established debts of up to £5,000 for an individual and £10,000 for a company, is considered only after standard collection has failed, which the factsheet describes as around 10 contact attempts over 9 to 12 months, and does not apply where the customer engages with HMRC to manage the debt. Before deductions begin HMRC carries out an affordability assessment that sets whether deductions are appropriate and their amount and duration, customers who need extra support go to a trained officer for manual review, there is advance notice and a clear opportunity to contact HMRC first, and where a customer says a deduction was taken in error HMRC applies a refund first policy while it investigates. Draft legislation is due for technical consultation in summer 2027.

The dates are in the Budget's policy costings document. The power takes effect for VAT and PAYE debts from July 2029, for Self Assessment and Simple Assessment debts from April 2030 and for corporation tax debts from April 2031, and it is expected to raise £50 million in 2029 to 2030, rising to £320 million in 2031 to 2032. So the direct answer for a company is this. Not yet under the new power, and not at all if you are in contact with HMRC and paying under an agreed plan. The businesses it is aimed at are the ones that owe under £10,000, have ignored a year of letters and could pay. If that is not you, the measure changes nothing except the cost of leaving a small bill unanswered.

08How do I apply with arrears and where do I start?

1. Get the number. Download your VAT and PAYE account statements from HMRC so you know the exact arrears, interest and penalties to the day.
2. Talk to HMRC before a lender if you have not already. An agreed plan, even one you later replace with a loan, puts you in the camp lenders fund.
3. Write the explanation. One paragraph on how the arrears arose, what has changed, and what the loan does. Attach the HMRC statement and the plan confirmation.
4. Gather the documents lenders ask for, six months of bank statements, the latest accounts and a cash flow forecast that shows the repayments fit.
5. Expect a personal guarantee on unsecured tax funding, and read what it covers before you sign.
6. Apply to the right lenders, once. Every hard search sits on the file. A broker knows which lenders accept arrears or an open arrangement and which do not, so you are not declined by three banks before you reach the lender that says yes. Our guide on why use a business loan broker explains what that saves.

Get your Instant Quotes to see your lender matches instantly, with no credit check, then a broker sources the lenders across the whole market that will fund a business with HMRC arrears and shows you the total repaid against HMRC's own charge. Our client reviews and case studies show how that has worked for businesses in the same position. Broker fees depend on the lender, with nothing to pay upfront. Lenders make every decision, and all finance is subject to status.