COVID - 19 dealing with cash flow issues in a crisis
How to survive when your income stops
A sudden interruption to work can usually be absorbed - dentists take holidays, get ill and take (unpaid) leave for all sorts of reasons. so why is the disruption caused by the COVID-19 different? .
First, we have had no time to plan for this. To make matters worse we don't know how long this is going to last or if we are going to be paid for any or some of the duration. All bets are off and we have learnt over the last two weeks that predictions are futile.
So what do we know?
The situation is not permanent. Whilst we don't have an end date and we can reasonably assume, based on parts of the word that are ahead of us, that dentists will be back to work within 3-6 months. This leads me to believe that most dentists are facing a severe cash flow issue rather than permanent financial difficulty.
Here are some solutions but first please note. In the normal course of events the above points are not long-term financial planning solutions. Any actions you take now will require regular and short-term review. We strongly advise you to consider carefully the implications of any action you may consider taking:
- Examine your outgoings but be careful about cancelling everything. Stopping some regular payments may result in a penalty. I expect you could stop regular savings and personal pension contributions relatively quickly and without penalty. We can worry about the longer term implications later.
- Speak to your mortgage lender or business loan lender about a payment holiday. We are all in this together and most lenders are sympathetic to the position you are in. However don't stop or reduce your mortgage payment without speaking to the lender first.
- Ask your mortgage lender if you can borrow more. Many of us have the capacity to draw down additional cash from our existing mortgage arrangements. Speak to your lender about this. Additional borrowing may affect the size of future repayments or the term of your mortgage so consider this before making any decision to increase your mortgage.
- Short term unsecured loans. These are often available with (up to) a 5 year repayment period
- Overdrafts and credit cards. Most banks are offering an embargo on fees for emergency overdrafts. Some credit card lenders have favourable terms, although be wary of high interest rates for some.
Things you probably shouldn't cancel
- Be wary of cancelling income or life insurance policies or general insurances. Don't make a bad situation worse. If you are ill in the midst if this crisis you need to know you remain covered.
- Do not cancel mortgage payments or business loan payments without first speaking to your lender.
Frustratingly many dentists won't qualify for employed 'furlough' benefits or don't qualify for self-employed grants due to the maximum income threshold of £50,000. So here are some things that may help the situation.
- Income Tax
For Income Tax Self-Assessment, payments due on the 31 July 2020 may be deferred until 31 January 2021.You are eligible if you are due to pay your second self-assessment installment on 31 July. You do not need to be self-employed to be eligible for the deferment.The deferment is optional. If you are still able to pay your second payment on account on 31 July you should do so. This is an automatic offer with no applications required. No penalties or interest for late payment will be charged if you defer payment until January 2021. HMRC have also scaled up their time to pay offer to all firms and individuals who are in temporary financial distress as a result of COVID-19 and have outstanding tax liabilities.
Support for businesses through the Coronavirus Business Interruption Loan Scheme (practices)
- The temporary Coronavirus Business Interruption Loan Scheme
Access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years. The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments. The government will provide lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The scheme will be delivered through commercial lenders, backed by the government-owned British Business Bank.
There are 40 accredited lenders able to offer the scheme, including all the major banks. Contact us for further details.
Please contact us if you require clarification on any points.