HMRC guidance relating to calculations for the Self-employment Income Support Scheme

05 May 2020

HMRC has issued guidance on how it will calculate the trading profits and non-trading income for those who are self-employed or a member of a partnership and have been negatively impacted by the outbreak of coronavirus.

HMRC will assess eligibility for the grant from the Self-employment Income Support Scheme (SEISS) based on an individual’s trading profits and non-trading income, as confirmed on Self-Assessment tax returns.

Trading Profits

This is shown within a tax calculation as either profits from self-employment or partnerships.

HMRC will calculate trading profit after deducting any allowable expenses, including expenses, capital allowances or flat rate expenses.

If an individual’s gross trading income, from one or more trades or businesses, exceeds £1,000, then the tax-free allowances can be used, as opposed to deducting any expenses or other allowances.

HMRC will calculate an individual’s share of a partnership’s trading profits by deducting anything that is non-trading income from all partnership income. HMRC will not deduct any losses brought forward from previous years or an individual’s personal allowance from their trading profits.

Profits from self-employment

HMRC will calculate trading profit after allowable business expenses by combining any losses brought forward from previous years with the amount shown on an individual’s tax return as ‘total taxable profits from this business.’

Profits from partnerships

HMRC will calculate an individual’s share of a partnership’s profits after adjustments, by combining any losses brought forward from previous years with the amount shown as ‘your total share of the total taxable profits from the partnership’s business’ on their tax return.

Paper short return

Trading profit after allowance business expenses is displayed on a tax return as ‘profit’.

Trading profit where the trading allowance has been claimed

Example

	2016 to 2017	2017 to 2018	2018 to 2019
Trading income	£21,000	£26,000	£16,000
Trading allowance claimed	0	£1,000	£1,000
Trading profit	£21,000	£25,000	£15,000

Trading profit where there is more than one trade in the same tax year

HMRC will combine all profits and deduct any losses for all those trades to establish trading profit.

Example

	2018 to 2019
Trade 1 profit	£60,000
Trade 2 loss	£20,000
Trading profit	£40,000

Where an individual has traded for all three tax years

To calculate average trading profit, HMRC will combine all profits and losses for all three tax years that somebody has had continuous trade, and then divide by three.

Example

	2016 to 2017	2017 to 2018	2018 to 2019	Average trading profit for the 3 tax years
Trading profit or loss	£60,000	£60,000	£30,000 loss	£30,000

Where an individual has continuous periods of self-employment for two tax years

To establish the average trading profit, HMRC will combine all profits and losses for the two tax years and divide by two.

Example

	2016 to 2017	2017 to 2018	2018 to 2019	Average trading profit for the 2 tax years
Trading profit or loss	Did not trade	£25,000	£45,000	£35,000

Where an individual has traded in two tax years, but not continuously

HMRC will calculate average trading profit based solely on the tax year 2018-19, even if an individual was self-employed in tax year 2016-17.

Example

	2016 to 2017	2017 to 2018	2018 to 2019	Trading profit
Trading profit or loss	£25,000	Did not trade	£45,000	£45,000

Non-trading income

This will be the amount recorded as ‘total income received’ on an individual’s online or paper tax calculation, less their trading income.

HMRC will calculate an individual’s non-trading income by combining all their income from earnings, property income, dividends, savings income, pension income, overseas income and miscellaneous income.

Eligibility

If an individual has traded for all three years, HMRC will initially look at their 2018-19 Self-Assessment tax return. Their trading profits must not exceed £50,000 and must be at least equal to their non-trading income.

If an individual is not eligible based on the 2018-19 Self-Assessment tax return, then HMRC will look at tax years 2016-17, 2017-18 and 2018-19.

Example

	2016 to 2017	2017 to 2018	2018 to 2019	Average for the 3 tax years	Total
Trading profit	£50,000	£50,000	-£10,000 - not eligible	£30,000	£90,000
Non-trading income	£15,000	£15,000	£15,000	N/A	£45,000
Eligibility using the tax year 2018 to 2019 only	N/A	N/A	No	N/A	No
Eligibility using the 3 tax years	N/A	N/A	N/A	Yes	Yes

So, even if a loss was recorded in tax year 2018-19, the individual would still be eligible because the average for the three tax years if £30,000, which is below £50,000, and the sum of the trading profits for the three tax years (£90,000) is at least equal to the sum of their non-trading income of £45,000 for those years.

How HMRC establishes partnership eligibility

If a partnership made £100,000 in trading profits in tax year 2018-19 and distributed its profits as follows:

Example

	Trading profits received	Non-trading income
Partner A	£25,000	0
Partner B	£75,000	0

Partner A would be eligible for the grant, as the trading profits received do not exceed £50,000.

Partner B would not be eligible for the grant, as the trading profits received exceed £50,000.

If partnership rules require Partner A to pay the grant into the partnership pot, the partnership must give the full grant back to Partner A.

How HMRC will calculate the grant

If an individual is eligible for the grant, and, for example, made an average trading profit of £42,00 over the three tax years, they would calculate the grant as per the following example.

Example

Average trading profit	£42,000
Divide by 12	£3,500
Multiply by 3	£10,500
Work out 80%	£8,400

As the maximum amount payable for this grant is £7,500, the grant is capped and paid at that figure.

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The information in this article is accurate at the time of publication. For all the latest information, news and resources on how the COVID-19 pandemic is affecting payroll professions, visit our Coronavirus hub.