HMRC clarifies income and trading profit calculation for self-employed support

Updated: 20 April 2020

HMRC has published guidance on how it will work out total income and trading profits for the income support scheme, designed to provide help for the self-employed and members of partnerships who have lost profits due to coronavirus

HMRC will assess eligibility for the grant based on total income and trading profits, and the guide provides details of how this is calculated.

To be eligible for the scheme, applicants must have trading profits of no more than £50,000 which make up more than half of their total income for either the tax year 2018/19, or the average of the tax years 2016/17, 2017/18 and 2018/19.

HMRC will use the figures provided on tax returns for the total trading income (turnover), then deduct any allowable business expenses and capital expenditure.

Allowable expenses include office costs, such as stationery or phone bills; travel costs including fuel, parking, train or bus fares; clothing expenses such as uniforms; staff costs including salaries or subcontractor costs; stock or raw materials; financial costs such as insurance or bank charges; costs of business premises; advertising and marketing costs; and training courses related to the business. It also includes any business expenses deducted through the trading allowance; capital allowances, used to buy assets used in the business; qualifying care relief; and flat rate expenses.

HMRC says it will not make deductions from trading profits for any losses carried forward from previous years, or for an individual’s personal allowance.

The guide provides examples of how to calculate total trading income in each of the tax years 2016/17, 2017/18 and 2018/19 and work out the average trading profit.

If an individual has more than one trade in the same tax year, HMRC says it will add together all profits and losses for all these trades to work out the trading profit.

The guide provides examples based on someone who only traded in the tax year 2018/19, as well as someone who traded for two or three tax years.

Total income is the total of income from earnings, trading profits, property income, dividends, savings income, pension income and miscellaneous income including social security income.

An example is provided showing that even if an applicant made a loss in the tax year 2018/19, they would still be eligible for the grant if their average trading profit for the three tax years met the criteria.

HMRC guidance is available here.

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