The self employed of you out there have probably spent many a hour with the calculator trying to work out what income you will be entitled to whilst this virus has us all on lockdown.

Whilst we can’t provide you with an accurate figure unless you personally get in touch with us we thought now would be a good time to put together some examples to illustrate how everything will work.

If you want a personalised illustration, please give us a call on 01384 271858 and we will get everything organised for you.

Example 1

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.

i.e. if you made:

  • £20,000 profit in tax year 2016 to 2017
  • £20,000 profit in tax year 2017 to 2018
  • £20,000 profit in tax year 2018 to 2019
  1. Add £20,000 + £20,000 + £20,000 = £60,000
  2. Then divide £60,000 by 3

Your average trading profit for the 3 tax years would be £20,000.

The grant will be 80% of your average trading profit, divided by 12 which will give a monthly amount.

The monthly amount for the grant to be paid in this example would therefore be £1,333.33 (i.e. 80% of £20,000=£16,000 then divide by 12 = £1,333.33). HMRC will pay this or up to a maximum of £2,500 a month, (whichever is lower).

Example 2

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

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

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

Your average trading profit for the above will be £40,000 (the same principle is then used as in example 1 to calculate the monthly grant payable).

Example 3

If you have more than one trade and traded for more than one year

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

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 (the same principle is then used as in example 1 to calculate the monthly grant payable).

Example 3A

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 (the same principle is then used as in example 1 to calculate the monthly grant payable).

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 2017 2017 to 2018 2018 to 2019 Average 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 income Yes Yes No Yes

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