How HMRC works out total income and trading profits for the Self-employment Income Support Scheme

HMRC will assess your eligibility for the grant based on your total income and trading profits. This guide details how we do this.

Written on April 7, 2020 by Xeinadin Group

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You can use this guide to find out if you’re eligible and how much you may get.

Trading profits

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

Allowable expenses include:

It also includes:

  • any business expenses deducted through the trading allowance
  • capital allowances, used to buy assets used in your business
  • qualifying care relief
  • flat rate expenses

We will not deduct from your trading profits:

  • any losses carried forward from previous years
  • your personal allowance

Example 1

If your total trading income (turnover) in each of the tax years 2016 to 2017, 2017 to 2018 and 2018 to 2019 was £20,000, and you claimed the £1,000 trading allowance each year.

This is worked out as:

  1. £20,000 deduct the trading allowance of £1,000 = £19,000
  2. Multiply £19,000 by 3 = £57,000
  3. Divide £57,000 by 3 = £19,000

Your average trading profit would be £19,000.

If you have more than one trade in the same tax year

We will add together all profits and losses for all these trades to work out your trading profit.

Example 2

If you only traded in the tax year 2018 to 2019, and made a £60,000 profit for your first trade, and then a £20,000 loss for your second trade, your trading profit for that year would be:

Trade 1 £60,000 profit deduct trade 2 £20,000 loss = £40,000

If you traded for more than one year

To work out your average trading profit we will add together all profits and losses for all tax years you’ve had continuous trade.

Example 3

If you made:

  • £60,000 profit in tax year 2016 to 2017
  • £60,000 profit in tax year 2017 to 2018
  • £30,000 loss in tax year 2018 to 2019
  1. Add £60,000 and £60,000 then deduct £30,000 loss = £90,000
  2. Then divide £90,000 by 3

Your average trading profit for the 3 tax years would be £30,000.

Example 4

If you did not trade in tax year 2016 to 2017 but made:

  • £25,000 of profit in tax year 2017 to 2018
  • £45,000 of profit in tax year 2018 to 2019
  1. Add £25,000 and £45,000 = £70,000
  2. Then divide £70,000 by 2

Your average trading profit for the 2 tax years would be £35,000.

Total income

Your total income is the total of all your:

  • income from earnings
  • trading profits
  • property income
  • dividends
  • savings income
  • pension income
  • miscellaneous income (including social security income)

Eligibility

Your trading profits must be no more than £50,000 and more than half of your total income for either:

  • the tax year 2018 to 2019
  • the average of the tax years 2016 to 2017, 2017 to 2018, and 2018 to 2019

Example 5

2016 to 20172017 to 20182018 to 2019Average for the 3 tax years
Trading profit£50,000£50,000-£10,000£30,000
Pension income£15,000£15,000£15,000£15,000
Total income£65,000£65,000£5,000£45,000
Trading profit are more than half of your total incomeYesYesNoYes

So even if you made a loss in the tax year 2018 to 2019, you would still be eligible for the grant because your average trading profit for the 3 tax years:

  • is £30,000 – which is less than £50,000
  • is more than half of your total income of £45,000

From: https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme

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