VAT bridging finance
VAT Bridging Rates: What 0.03% Per Day Actually Means
PropertyVAT Team · Updated · 3 min read
Daily rates confuse people because the instinct is to annualise them. Multiply 0.03% by 365 and you get something close to 11%, which sounds punishing for short-term money.
That number is real arithmetic and a poor guide to what you will actually pay.
The arithmetic
A daily rate is charged on the balance for each day it is outstanding.
| Facility | Daily rate | Cost per day | 30 days | 60 days | 90 days |
|---|---|---|---|---|---|
| £100,000 | 0.03% | £30 | £900 | £1,800 | £2,700 |
| £300,000 | 0.03% | £90 | £2,700 | £5,400 | £8,100 |
| £500,000 | 0.03% | £150 | £4,500 | £9,000 | £13,500 |
The useful figure is the one in the body of that table, not the annualised equivalent. You are borrowing for a defined, short period that ends when HMRC repays you.
Why the term matters more than the rate
Because the term is the variable you can actually influence.
Two buyers, both borrowing £300,000 at 0.03% per day:
- Buyer A completes two weeks before their VAT quarter ends. Reclaim arrives in roughly six weeks. Cost: around £3,800.
- Buyer B completes two weeks after their quarter ends. Reclaim takes close to four months. Cost: around £10,800.
Same rate, same lender, same property. Nearly £7,000 of difference, decided by a completion date.
Negotiating the rate down from 0.03% to 0.028% on Buyer B's deal saves roughly £700. Moving their completion date would have saved ten times that.
What else is in a quote
The rate is one of at least four numbers. Ask for all of them:
Arrangement fee. Usually a percentage of the facility. Check whether it is deducted from the advance — if so, your net receipt is lower than the headline figure, and it needs to still cover the VAT.
Interest treatment. Three common structures:
- Serviced — you pay monthly
- Rolled — interest accrues and is settled on redemption
- Retained — deducted up front from the advance
Retained interest is the one to watch. If £300,000 of VAT is due and the lender retains interest from a £300,000 facility, you are short at completion.
Minimum term. A one-month minimum on a facility you redeem in three weeks means paying for the month.
Exit or redemption fee. Sometimes nil, sometimes a percentage. It belongs in the comparison.
Comparing two quotes properly
Build the same total for each:
- Daily rate × facility × your realistic number of days
- Plus arrangement fee
- Plus exit fee
- Check the net advance actually covers the VAT
- Check what happens if you run past the expected term
A lender quoting 0.028% with a 2% arrangement fee and a one-month minimum will usually cost more on a short facility than one quoting 0.032% with a 1% fee and no minimum.
What drives the rate you are offered
- Strength of the reclaim. A registered entity with filing history prices better than a first-time SPV.
- Security structure. A charge over the property may price differently from a facility secured on the HMRC recovery alone.
- Expected term. Shorter, more certain reclaims are cheaper to fund.
- Size. Larger facilities often attract finer pricing.
- Case quality. A packaged case with the VAT position evidenced and registration in place is cheaper to underwrite.
The last one is free. It is also the one most often neglected.
This guide is general information, not financial advice. Rates, fees and structures vary — obtain a written quote for your transaction.
Frequently asked questions
- Why not just quote an annual rate?
- Because the loan does not last a year. Annualising a facility that runs for six weeks produces a number that is technically correct and practically misleading, in both directions.
- Is a lower daily rate always the better deal?
- No. A lower rate with a higher arrangement fee, a minimum term, or retained interest can cost more in total. Compare the all-in cost over your realistic term, in pounds.
- What does "retained interest" mean?
- The lender deducts the expected interest from the advance at the outset. You receive less than the facility amount, so check that the net advance still covers the VAT you need to pay.
- What happens to the rate if the reclaim takes longer than expected?
- Usually you keep paying the daily rate for the extra days, though some facilities have a minimum or a different extension rate. Ask what applies before you sign.
Related guides
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