A growing number of UK small businesses are turning to finance to help manage their tax bills. Funding Circle data shows that borrowing for tax payments increased by 29% in 2025 to £25 million, while the average amount borrowed for tax also rose by 13%.
Companies in the UK typically take out loans to open new premises, buy equipment, hire staff or increase their stock. However, borrowing is increasingly being used for another practical reason: managing tax bills and keeping cash flow under control.
For many UK businesses, tax payments can create a significant short-term demand for cash. Even a profitable business can face a timing gap if money is tied up in unpaid invoices, stock or day-to-day costs when a tax bill becomes due.
Tax bills can put pressure on cash flow
“Tax is one of the costs that businesses have to plan for throughout the year, even though it is hard to do so,” explains Ben Sweiry, co-founder of business finance broker, Acceptance.co.uk.
“Companies start to feel on top of their cash flow but then get hammered by Corporation Tax, VAT, PAYE and other liabilities that can create large payments at particular points, which can put pressure on available cash.”
“This does not mean every business is borrowing because it cannot afford its tax bill. In some cases, finance can simply help manage the timing of payments while the business waits for customer invoices to be paid.”
“The use of business finance can help see their company through their tax bills, which then looks positively on the company if they are applying for larger or more institutional funding or just don’t want to be behind on the tax man. In particular, we see a popularity of VAT loans, which are quarterly and smaller amounts, hence easier for many SMEs to take on.”
Working capital remains a major reason for borrowing
Cash flow is another important reason businesses seek finance. A company may have strong sales but still experience periods where money going out is greater than money coming in.
Working capital finance can help cover everyday expenses such as wages, rent, suppliers and other operating costs. According to analysis of Funding Circle's 2025 lending data, working capital accounted for £533 million of lending, representing 37% of all loans in the data.
This shows how business finance can be used to support everyday trading, rather than only large investment projects.
Expansion can require extra funding
Growth is another common reason for taking out business finance. A company may have an opportunity to increase sales but need additional money before it can take advantage of it.
This could mean opening another location, employing more people, launching a new service or investing in marketing. Finance can provide the funds needed to make these changes without requiring the business to use all of its existing cash reserves.
Funding Circle's 2025 lending data found that expansion was the largest borrowing purpose in its lending, with £701 million provided for this reason.
Stock can create a funding gap
Businesses that sell physical products may also need finance to purchase stock. This is particularly relevant when a company needs to buy large quantities in advance of a busy trading period.
For example, a retailer may need to purchase Christmas stock months before receiving the sales income. A wholesaler may also need to hold more inventory when demand increases.
Finance can help bridge this gap, allowing the business to purchase what it needs while keeping enough cash available for other costs.
Machinery and equipment can be expensive
Machinery, vehicles and other equipment can require a substantial upfront investment. For many businesses, paying the full cost from cash reserves may not be practical.
Asset finance, leasing and loans can provide alternative ways to fund these purchases. The equipment can then support the business while the cost is spread over an agreed period.
The wider UK market also shows strong demand for this type of finance. The British Business Bank reported that new asset finance business for smaller companies reached £24.4 billion in 2025, a 4% increase on 2024.
How many small businesses use finance?
Finance is already a normal part of running many UK businesses. The government's Longitudinal Small Business Survey found that 72% of SME employers were using some form of external finance in 2024.
Among these businesses, credit cards were the most commonly used form at 38%, followed by bank overdrafts at 29% and loans from banks, building societies or other financial institutions at 24%.
Looking specifically at applications, 15% of SME employers had sought external finance during the 12 months covered by the 2024 survey. Of those businesses applying, 37% sought a bank overdraft and 36% sought a bank loan.
Secured, unsecured and flexible finance
Businesses have several options when they need funding. Secured finance is usually backed by an asset or other form of security, while unsecured finance does not normally require a specific business asset to be used as security.
Typically, the information lenders require for a business loan include 3 months recent bank statements and annual accounts, and this provides the basis of their loan decision. Further information such as credit scores of directors and personal guarantees come into the mix a bit later.
Credit lines and overdrafts offer another approach. Rather than taking one large amount upfront, a business can have access to an agreed facility and use funds when they are needed.
The British Business Bank reported that around half of smaller businesses used external finance in Q3 2025, with credit cards used by 19% and overdrafts by 16%.
Choosing finance for the right reason
Business finance can support many different needs, from paying a tax bill and managing cash flow to buying stock, funding machinery or supporting expansion.
The important consideration is matching the type and amount of finance to the purpose. A short-term cash flow gap may require a different solution from a long-term investment in equipment or premises.
As the latest figures show, UK businesses are using finance for a wide range of reasons. Tax payments are becoming a more noticeable part of that picture, alongside the established needs of working capital, expansion, stock and investment.
