IMPROVING YOUR CRISIS-HIT FINANCES
What is available if you’re flat broke? Here’s how to claw back some cash.
The last few weeks have seen us go on a very bumpy ride indeed, since the shock of pandemic and lockdown. And when it comes to our finances, the circumstances we now find ourselves in vary enormously from person to person. On whether you’re a home owner or not. Whether you’re a limited company or not. Have been furloughed or made redundant or are working from home or not. Can get your usual client work or not. Whether your industry can operate or not. You live with a partner or not. Have savings or not. If you’re struggling or could just do with a little help with planning for the next few months, these are the UK-relevant options for improving your cash flow and getting yourself in the best financial position.
Get a loan
While the Coronavirus Business Loan Interruption Scheme sounds pretty promising, many are finding that banks are not being that helpful. However the banking industry is under pressure to be more amenable and flexible, so give it a go. Meanwhile the introduction of the £500 interest-free overdraft offers greater flexibility, so talk to your bank or building society about this facility.
Take a break
You can take a mortgage holiday for one to three months – even if you’re a company director. This means no mortgage payments for that period and could be the matter of a quick phone call. Alternatively, some lenders are offering the option to move to an Interest Only mortgage for a while. If you rent your home, negotiate with your landlord about delaying payment of rent – there’s a ban on evictions, so they have to be amenable. But bear in mind that this might not set a good tone for your landlord wanting to keep you as a tenant in the long run. If you have business premises speak to your local authority about whether you qualify for a business rates grant.
Get a grant
If you’re a sole trader or a member of a partnership you will be entitled to apply for the SEISS – Self Employment Income Support Scheme. To see if you qualify HMRC look either at your income in the 2018-19 tax year in isolation, or they base it on your average income from the last three years. If the majority of your income comes from self-employment and it’s under £50k per annum, you’re entitled to the grant. It is calculated based on 80% of your average income over the last three years (or from the date you started trading if more recent), pro-rated for three months, up to a maximum of £2500 a month. Available in June, backdated for three months as a lump sum, it’s a taxable amount like any other source of income – but unlike a loan you won’t have to pay it back later.
Defer your tax
You can defer paying your income tax bill in July 2020. This is great for now, but don’t forget that you will still pay this amount in January 2021. If you’re VAT-registered, you could defer making your VAT payment due before 30th June, until 31 March 2021. Even if you are paid dividends as an individual your payment on account in July will be automatically deferred, saving you cash. To defer any other tax bills speak to the Business Support helpline at HMRC. Meanwhile do yourself a favour and prepare your tax return for 2019-20 now so you know how much you’ll need to be saving for the January payment. You’ll only know what you’ve got once you’ve written it all down – and this will let you know whether you need to ask for help or not, preventing you from becoming anxious about how you’re going to live for the next few months.
If you don’t qualify for SEISS, the other option is Universal Credit, which is £409.89 a month if you’re over 25. If you have one or two children, you’ll get an extra amount for each child. As an individual you can claim Universal Credit regardless of whether you’re in a partnership, company or you’re a sole trader, provided you meet the requirements (eg, having savings of less than £16k). It is also dependent on what your partner earns. If one of you is still earning, you may not be entitled to Universal Credit, as it’s based on household income. And don’t forget to look at housing benefits, which you may now be entitled to. Speak to the HMRC tax credit office to see if you’re entitled to tax credits. With all these benefits it can be hard to get through on helplines and there are lots of forms to fill out, but it’s worth it for the peace of mind.
If you are in financial difficulty you can defer paying into your pension. And if you’re of pensionable age, you could take your pension now rather than put it off. For example, if you’re over 55 and have a private pension, drawing some down now may be an option, so speak to your financial adviser. And if you’re 66 or over you could start taking your state pension now. But be mindful that if you have the type of pension that’s following the market, it may be worth a lot less than it was six months ago, so do look at alternative ways to improve your cashflow before exploring this option.
Work out your outgoings
Do a household budget for the next three months by looking at the last three. This will give you an accurate overview of your regular outgoings. Divide your outgoings into four columns – Essential (bills etc), Not Essential (takeaways etc), Nice to Have (magazine subscriptions etc) and Not Essential Right Now (eg taxi account). What savings can you make on your outgoings? Some councils are allowing deferments of council tax payments. Have those conversations with suppliers to see what leeway there might be. Are there any annual subscriptions coming up that you can cancel? Is there anything that’s costing you less because it’s not essential now, like blow dries or season tickets? If you “plan for what you know you have, not what you think you have,” it can be freeing. You may even find your current costs are much lower than you thought.
Words: Faye Watts, Audrey co-founder and founding partner of FUSE Accountants.