GUIDE TO VAT FUNDING
in association with Vatbridge
BRIDGE
Guide to VAT funding
Welcome to the Bridging & Commercial Magazine guide to VAT funding, in association with Vatbridge Contents 4-5 Introduction to VAT funding 6-7 The Vatbridge process 8-11 Highlighted case studies 12-13 FAQs 14 Meet the Vatbridge team
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Guide to VAT funding
Guide to VAT funding
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Introduction to VAT funding
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O
ver the past 12 months, VAT funding has become a point of interest for many property buyers and developers.
Despite this, a recent feature published on Development Finance Today claimed that it was “surprising” that there had not been more lenders introducing a VAT funding product to the market.
Those buying property are increasingly looking for funding to cover the shortfall in cash flow they face when paying the VAT on top of a property purchase.
Experts predicted that the market would continue to grow and that it wouldn’t be long before it was a regular add-on offered by lenders.
As a result, there are now a collection of specialist lenders who concentrate purely on VAT finance.
The growth of VAT funding is down to a number of factors.
They offer loan advances up to 100% of the VAT due for sums ranging from a few thousand pounds into the millions.
First, the VAT product releases cash otherwise tied up with HMRC, this enhances deal capacity by using the advanced funds to exchange on additional acquisitions.
They also promise fast turnaround times, completing deals within seven days to make sure property purchases go ahead smoothly and efficiently.
Second, funding gaps during property transactions are becoming increasingly common due to down-valuations and LTV caps.
As well as specialist VAT lenders, a number of other lenders offer VAT products as part of their product ranges.
Finally, the advanced funds can be deployed immediately into developments, accelerating the project timescales.
Meanwhile, the growth of the bridging sector has seen many lenders diversify their product ranges, and although the VAT funding market is growing, there is still a relatively low number of players in the sector when compared with the bridging market. This means that there is still a gap to be filled and, as a result, it’s an area where many lenders can look to grow market share. However, despite a range of lenders offering VAT funding, there are still a number of people who are unaware of its benefits. Although news coverage of the market is growing, it’s still not widely talked about and continues to go under the radar. The aim of this guide is to help you to understand more about the benefits of using VAT funding and how it can help during a property transaction.
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Guide to VAT funding
Day 1 1. Call comes in 2. Quote sent 3. Loan in principle sent
Day 2 1. Commitment fee paid 2. Broker assists with gathering documents 3. Legal counsel instructed on both sides
Day 3 1. Negotiation starts with primary lender 2. Contracts sent to client’s legal counsel
Day 4 1. Documents received back 2. Due diligence starts 3. Vatbridge set as registered office 4. Vatbridge elected as VAT agency 5. Bank accounts changed with HMRC
Day 5/6 1. Negotiation ends with primary lender 2. Signed contracts received
Day 7 1. Loan advanced
Day 8-90 1. Client sends us invoices for submitting to HMRC 2. VAT return submitted 3. Loan paid off
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process
The Vatbridge process
Guide to VAT funding
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CASE STUDIES BRIDGE
Study 1 - Vatbridge The client came to us directly to borrow funds for a VAT reclaim of £2.11m for a development site in London. Due to the quick supply of documentation and good communication lines between all parties, the loan in principle was sent out in a day with the loan being advanced after seven days. Since we had arrangements already in place with the primary lender, the process of agreeing documents between lawyers was simplified. One week after the VAT return had gone in, HMRC contacted the client in order to answer a group of questions. Funds were then sent from them to us within days of this taking place.
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This allowed the client to find the cash to make sure that the transaction did not fall through. The client was a serial property developer and the reclaim did not give rise to a VAT inspection which led to the fast repayment by HMRC. The whole process took 32 days. The client stated: “It’s been a real pleasure working with Vatbridge during our recent purchase of a site in Camden. “Their professionalism was evident throughout the whole transaction. “We can highly recommend their services.”
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Study 2 - Vatbridge
Study 3 - DF+
The client came to us wanting a £115,000 reclaim for a building project in London.
The client came through a broker to us wanting funding for the VAT liabilities of the construction cost of a proposed hotel and commercial park on an ongoing basis.
The client wanted to have 100% of the VAT liability so that they could use their own funds to invest into the building. We were able to fund the total amount and get funding over to the client before completion of the property. The deal was a classic Vatbridge + product offering where we became the agent and immediately converted their quarterly return status to monthly, enabling a much faster reclaim to be submitted. We worked closely with the company’s accountants and professional advisors to ensure a speedy conclusion to the loan. The funding advance took two months to reclaim from HMRC, so we were able to minimise the amount of interest charged to the client. The client stated: “We simply did not have the resources to complete the transaction. “Ian and his team were helpful and made the whole process easy. “All questions were addressed promptly and Vatbridge’s London lawyers Royds were commercial in their approach, a big bonus compared to some solicitors we have come across.”
We were able to put a deal together whereby the client submitted their invoices to us on a monthly basis for submission to HMRC. Once the invoices went through a verification process, we were able to supply the client with 80% of the refund amount. The line of credit was run through our system, giving the client online access to their account and its position. It accelerated their ongoing VAT reclaims by two months, injecting a further 16% into their cashflow. All developers large and small are searching for the last penny to assist in the development process. The 12-month rolling facility allowed £300,000 to be reclaimed in the first month. This reclaim occurs each month and the client is constantly uploading purchase invoices to accelerate his VAT reclaims. The client stated: “This facility was easy to put in place and gives us that extra wiggle room each month. “The costs are reasonable, and it is accessible, transparent and easy to use. “We will be using this for all our development sites in the future.”
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FAQ
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Frequently asked questions What security do you take? To secure the VAT bridge loan we take a personal guarantee, debenture and second charge against the property. In addition to this – under certain circumstances – other securities may be required.
My primary lender will not allow for certain terms such as the debenture and a charge against the property. Does this mean that I cannot get a loan?
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We have found that different lenders have different terms and conditions. In situations like this we are happy to negotiate with the senior lender in order to reach a ‘middle ground’, which is usually in the form of an adapted intercreditor deed.
How quickly can I have the money in my account? Typically, the process up to the advancement of the loan takes 7-10 working days. Although, these times can vary depending on the complexity of the deal and how quickly you can get the documents back to us.
How quickly do you claim it back? Vatbridge will retain 90 days’ interest during the loan process. Although, we find that we can we are reclaim within two or even one month* in some rare cases. The interest will then be calculated and the excess refunded. *deals are subject to 65 days’ minimum interest fee period.
Is it quicker if we do our returns monthly? When Vatbridge adds the bank account to your HMRC account, we also automatically change the return period to monthly. This will allow us to claim back the money that much quicker which will save the client on the interest.
Is there always an inspection? Usually there is an inspection on anything out of the ordinary in some form once the return has been submitted to HMRC. Although, we have found that can usually be as easy as answering a f ew questions. As part of the process, Vatbridge will intercept these queries as we find that we are able to answer them and liaise with HRMC directly, taking this pressure off the client.
Do I need a solicitor to be involved with the deal? Vatbridge would always recommend that a solicitor is involved in the process. Saying this, the only reason that we do insist on one is to issue ‘independent legal advice’ and to witness the signing of the personal guarantee. This is to ensure that the personal guarantee ‘sticks’.
What is the minimum amount that VATBRIDGE will fund? Vatbridge will usually accept loans of £50,000 with no upper limit. For loans of less then £50,000 special terms may apply.
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Get in touch www.vatbridge.com | twitter.com/vat_bridge
Ian Boots General Manager t. (01206) 581529 e. i.boots@vatbridge.com
Laurence Rutter
Sarah Terry
CEO
Sales and Marketing Manager
t. 0845 468 6423 m. 07786 550562 e. l.rutter@vatbridge.com
t. (01206) 581534 e. s.terry@vatbridge.com
Vince Bull
Graham Avery
Managing Director
Executive Chairman
t. 01206 581520 m. 07881 811855 e. v.bull@vatbridge.com
t. 0845 468 6423 m. 07860 453741 e. grahamavery@groupavery.com 15