Although COVID-19 has brought many changes to our professional and personal lives, some things remain constant. Unfortunately, taxes are one of them, which now more than ever has left dentists worrying about the strain on their finances.
While some dental practices reopened in June, added costs due to purchasing high-grade protective equipment has left many worrying about their ability to survive.
Even though social distancing rules have recently been relaxed, in reality the majority of dentists face the prospect of reduced patient numbers for some time to come.
Underworked but overtaxed
The dental industry has been hit hard due to most practices failing to qualify for the Government’s business rates exemption offered to high street firms, resulting in them having to carry on paying when they were closed.
To help businesses and self-employed dentists ease the burden on their cash flow, HMRC are allowing deferral of the second self-assessment TAX payment on account for the tax year 2019/20 due on 31st July until 31st January 2021. No interest or penalties will arise and deferral is automatic with no applications required.
To pay or not to pay
Allowing self-employed workers more time to pay their tax bills will provide welcome relief for many dental principals and associates. In the short-term, it will go some way to reducing the commercial and financial impact to enable practice owners to utilise their cash reserves to more immediate expenses, such as purchasing personal protective equipment (PPE) and specialist cleaning equipment, or even refurbishments to the practice building.
Whilst deferring your tax bill may seem an easy decision, there could be financial implications by choosing to delay payment. These could become more significant in an uncertain business climate, particularly if there is a second outbreak of the pandemic.
Remember that the deferred amount will become due at the same time as your January self-assessment tax liability (31st January 2021), leaving you with a larger bill than usual. This could bring unexpected cash-flow challenges in the new year at a time when you will be hoping your practice is in recovery following previous lost momentum. Depending on your financial circumstances it may also be more difficult to apply for credit at that time.
Deferral isn’t the only option
To avoid increased costs in the future, you can still choose to pay your tax bill now as you normally would. In fact, HMRC are encouraging businesses and self-employed workers to behave as ‘good citizens’ and pay the tax they owe on time thereby helping the Government. In doing so, you could be helping yourself in the long-term.
If you do choose to make the payment, you may wish to spread the cost over the remaining months of the year in order to retain working capital in your business. Alternative finance providers offer unsecured loan facilities, which allow you to spread the cost of tax liabilities in a flexible way over a term of six or 12 months (for self-assessment tax). Some specialist lenders are also currently offering an optional deferred repayment for the first month, further easing the burden on your finances.
Planning for the ‘new normal’
Whichever route you take with regard to managing your cash flow, your business plan must be updated to take into account what has arisen from COVID-19. It is important to review resource costs, cash flow, treatment forecasts and profitability, as well as the additional expenditure on necessary safety measures, such as:
- The cost of personal protective equipment (PPE)
- The number of opening hours
- The mix of treatments the practice is delivering
- The cost of lab equipment and materials
- Each clinician’s hourly rate
- ‘What if?’ scenarios in the event of a second wave of the pandemic.
Once updated, review the plan and review again as you need to know it is accurate. Share it with others, such as specialist accountants who can demonstrate a deep domain knowledge of the dental industry and trusted advisors, to get their input and then do not be afraid to tweak until you feel it is right.
Thereafter, constantly monitor the results against the plan, so you know what is working or to see where changes are needed.
In a world that has become increasingly unpredictable, gaining better predictability and understanding over your monthly expenditure will enable you to navigate current and future challenges with a clear perspective and a degree of peace of mind.
About Sarah Jarvis
Sarah Jarvis is a professional banker who has been working in healthcare for over ten years, bringing a wealth of experience from different financial backgrounds. She started her career as a business manager in the Baker Street area and became immersed in the healthcare industry as her interest in the sector bloomed. In her time as a Regional Healthcare Relationship Manager at Wesleyan Bank, Sarah has helped hundreds of dentists to buy, equip and upgrade their dream practices. When she is not helping dentists achieve their goals, she loves nothing more than walking with her husband and dogs along the beachfront.