Can Invoice Finance Help Me Pay HMRC Debt?
Indirectly, yes. Invoice finance releases cash from unpaid invoices within 24 hours. You can use that cash to pay HMRC. It won't clear existing debt, but it prevents new debt by ensuring you have VAT/PAYE money available when HMRC bills arrive.
Why This Matters
HMRC debt is one of the most serious cash flow problems a UK business can face. Unlike commercial creditors, HMRC has extraordinary powers: they can issue winding-up petitions, use Direct Recovery of Debts to raid your bank account, and pursue directors personally for PAYE and VAT. For businesses on tight margins, the gap between invoicing clients and getting paid often creates the exact cash shortfall that causes HMRC arrears. Invoice finance addresses this by releasing 80-90% of invoice value within 24 hours of raising the invoice, giving you working capital before payment terms expire. Crucially, this isn't a loan to pay off historic debt, it's operational finance that prevents debt accumulating in the first place. If you're invoicing £50,000 monthly on 60-day terms but need £12,000 for VAT and £8,000 for PAYE every month, invoice finance bridges that timing gap. The cash you access is your own money, advanced early. For businesses already in arrears, it can stabilise cash flow while you negotiate a Time to Pay arrangement, but most invoice finance providers will check your HMRC standing before approval.
Key Points
- Invoice finance advances 80-90% of invoice value within 24 hours, providing immediate working capital you can use for any business expense including HMRC liabilities.
- It won't directly clear existing HMRC arrears, existing debt requires negotiation or a separate repayment plan, but it prevents new debt by ensuring you have funds available when VAT, PAYE, Corporation Tax or CIS deductions fall due.
- Most UK invoice finance providers perform credit checks that include HMRC standing. Outstanding CCJs, winding-up petitions, or formal debt recovery action will likely block approval until resolved.
- If you already have HMRC arrears under £30,000 and a viable Time to Pay arrangement in place, some providers (Close Brothers, Bibby Financial Services, Aldermore) may still approve you, particularly if the debt is being serviced on schedule.
- VAT-registered businesses can finance VAT-inclusive invoice values. If you invoice £60,000 including £10,000 VAT, you typically receive 85% of £60,000 (£51,000), giving you liquidity to pay the VAT element when the return is due.
- Invoice finance is more accessible than a business loan for companies with HMRC issues because approval depends on debtor creditworthiness (your customers), not your balance sheet. If you invoice creditworthy B2B or public sector clients, you can often secure funding even with historic tax issues.
- Selective invoice finance lets you choose which invoices to finance, useful if you only need cash flow support during quarterly VAT periods or annual Corporation Tax payments rather than continuous funding.
Real-World Example
A Birmingham construction subcontractor with £900,000 annual turnover invoices a tier-one contractor on 60-day terms. They owe HMRC £18,000 in overdue CIS and VAT after two poor months, and another £22,000 VAT payment is due in four weeks. They have £95,000 in unpaid invoices.
They set up invoice discounting with Bibby Financial Services, advancing 85% against the £95,000 (£80,750 within 48 hours). They use £22,000 to cover the upcoming VAT liability, preventing further arrears, and negotiate a six-month Time to Pay arrangement for the existing £18,000. The ongoing facility ensures future VAT and CIS payments are always covered, stopping the debt cycle. The provider required evidence of the Time to Pay agreement before final approval.
Common Pitfalls
- Thinking invoice finance will erase existing HMRC debt. It releases cash from invoices, it doesn't write off arrears. You still need to negotiate repayment terms or settle outstanding liabilities separately.
- Applying for invoice finance while a winding-up petition is active or a CCJ is unsatisfied. Most providers will decline immediately, approval requires resolution or a formal repayment arrangement first.
- Using all the advanced funds to clear old debts and leaving nothing for ongoing operational costs, payroll, or supplier payments. This creates new cash flow problems and defeats the purpose of the facility.
- Assuming invoice finance is cheaper than a Time to Pay arrangement with HMRC. Time to Pay typically carries minimal or zero interest if agreed proactively, invoice finance costs 1-3% monthly on the advanced amount, use it for future cash flow, not debt repayment.
- Not disclosing HMRC arrears to the provider during application. They will discover it during credit checks, non-disclosure usually results in automatic rejection and damages trust for future applications.
What to Do Next
- Check your exact HMRC position: log into your Business Tax Account and list all outstanding liabilities, payment deadlines, and any existing Time to Pay arrangements. Providers will ask for this during underwriting.
- If you have arrears over £10,000, contact HMRC on 0300 200 3835 before applying for invoice finance. Secure a formal Time to Pay arrangement in writing, most providers will accept you once a repayment plan is active and being honoured.
- Prepare an aged debtor report showing all unpaid invoices, customer names, amounts, and due dates. Providers like Aldermore, Close Brothers, and Secure Trust Bank will assess your debtor book quality, not just your HMRC status, high-quality debtors can offset historic tax issues.
- Use our comparison tool to identify providers who accept businesses with managed HMRC arrangements. Specialist providers like Ultimate Finance and Time Finance have more flexible credit policies than high-street banks.
- Once approved, ring-fence a portion of each advance for upcoming tax liabilities. If you advance £40,000, immediately set aside the VAT or PAYE portion in a separate account to avoid repeating the cycle.
Related Questions
Will invoice finance providers reject me if I have a HMRC Time to Pay arrangement?
Not automatically. If the Time to Pay arrangement is formal, up to date, and for a manageable amount (typically under £30,000), providers like Close Brothers, Bibby Financial Services, and Aldermore will often approve you. They want evidence you're servicing the debt on schedule. Active winding-up petitions or unpaid CCJs from HMRC will result in rejection until resolved.
Can I use invoice finance to pay VAT on invoices I'm financing?
Yes. Invoice finance advances 80-90% of the VAT-inclusive invoice value immediately. If you invoice £48,000 plus £9,600 VAT (£57,600 total), you receive roughly £49,000 within 24 hours. You can use £9,600 of that to cover the VAT liability when your return is due, rather than waiting 30-90 days for customer payment. This is standard practice for VAT-registered businesses using invoice finance.
What happens if HMRC issues a winding-up petition while I have an invoice finance facility?
Most invoice finance agreements include a clause allowing the provider to suspend or terminate the facility if a winding-up petition is issued. They may freeze advances until the petition is dismissed or a Company Voluntary Arrangement is approved. Notify your provider immediately if HMRC threatens this action. Proactive communication and evidence of debt negotiation can sometimes preserve the facility, but expect stricter terms or temporary suspension.
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 8 April 2026