Who springs to mind when you think about business lenders?
There are banks, building societies, an increasing number of alternative online finance companies and, of course, not-for-profit organisations such as Business Finance Cumbria.
One name you might not think of immediately is His Majesty’s Revenue and Customs. However, the reality is that many small businesses are using HMRC as a de facto overdraft facility on a regular basis.
HMRC as a de facto lender
When cash flow is tight, there is a temptation to delay paying the tax bill to make ends meet. Afterall, the interest rate on arrears used to be relatively low, with a degree of flexibility around payment.
The number of businesses which choose this approach is reflected in National Audit Office figures, which show that of £103bn of new tax debt in 2025/26, nearly half was resolved within a month. This suggests at least some was the result of short-term cash flow issues.
But things are changing, with seismic implications for small business.
How the situation is changing
In the recent Budget, the Government confirmed plans to require firms to have Direct Debit arrangements in place for paying VAT and PAYE from April 2029 – taking control out of business owners’ hands. The interest rate on late payments will also increase to 7.75% from January.
The impact will be enormous for small businesses, removing a key element of financial wriggle room, while also making HMRC debt more expensive.
This could have serious consequences for businesses running on tight margins, with unpredictable cash flow, leading to highly stressful pinch-points.
With much more stringent requirements on the horizon, now is the time for businesses to really understand their working capital requirements and be in position to absorb the additional effect on cash flow.
How Business Finance Cumbria can help you prepare
The good news is that Business Finance Cumbria is here to help.
We provide business finance to SMEs across Cumbria. Funding is available from £25,001 up to £150,000 for a variety of uses, including working capital.
Subject to eligibility, our finance is backed by the Government Growth Guarantee Scheme from the British Business Bank. This gives us the ability to support viable business propositions which may otherwise find it difficult to borrow from a traditional bank.
This – coupled with our face-to-face, bespoke approach to lending – means we are in a good position to help you get the necessary financial arrangements in place as the new tax regime comes into action.
If you are interested in finding out how Business Finance Cumbria can help your business, contact the team by emailing [email protected] or calling 01768 867118.
(Photo by Christopher Bill on Unsplash)