How to defer your VAT on your next asset finance deal
When you buy an asset for your business, whether it’s a van, a digger, or a piece of equipment, you’ll usually need to pay VAT upfront. And on a big-ticket item, that can be a chunky hit to your cash flow.
That’s where VAT deferral comes in, a smart, fully compliant way to manage your cash while still getting the kit you need.
💡 What Is VAT Deferral?
A VAT deferral lets you delay paying the VAT on your purchase for a short period, typically until month three of your finance agreement. It doesn’t remove your VAT liability, it simply shifts the timing to give your business breathing room.
That delay gives you time to reclaim the VAT from HMRC on your next return, and use that refund to cover the payment when it’s due.
⚙️ How It Works
Let’s say you’re financing a £100,000 digger plus VAT.
Normally, you’d have to find £20,000 VAT on day one. With a VAT deferral, the lender pays the full invoice to the supplier, and you start your finance payments without the VAT upfront. Then, around three months later, you pay that £20,000 to the lender, ideally using your VAT reclaim.
Everything stays above board, fully compliant with HMRC guidelines, and you’ve protected your working capital for another quarter.
💷 What Does It Cost?
There’s usually a small additional interest charge, because the lender is effectively fronting that VAT for you for a few months. But compared to the benefit of holding on to £20,000–£40,000 of cash flow, it’s a no-brainer for most businesses.
Think of it like buying yourself a three-month cash flow cushion, not a loophole, just a smart use of finance.
🚫 Where You’ll Find It
VAT deferral isn’t normally offered by incumbent manufacturer backed or motor finance lenders, because their systems are geared for consumer-style deals. It’s available through specialist business and commercial funders, the ones set up to work directly with VAT-registered companies and commercial assets.
So if you’re buying in your business name, with an invoice that includes VAT, this tool should definitely be on your radar.
✅ Why It’s Worth Considering
- Keeps cash in the business for wages, materials, or growth
- Helps you match outflows with HMRC reclaim timings
- Works seamlessly with hire purchase or lease purchase structures
- Fully compliant when managed correctly
🐟 Final Thoughts
A VAT deferral isn’t flashy, but it’s one of the simplest, smartest ways to ease cash flow when buying assets. If your accountant’s ever said “you can reclaim the VAT next quarter,” this is how you bridge the gap.
And that’s the deep dive on how to defer VAT on your next asset finance deal.
