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What happens if one of the years for the scheme made a loss

By 28th April 2020

The self employed income grant scheme is not yet available online but here is a question we have been asked about how HMRC will calculate the grant if one of the qualifying years actually made a loss.

The amount of grant that HMRC will pay to those claiming the SEISS is based on the average yearly trading profit in the 16/17, 17/18 and 18/19 tax years. The amount received will be 80% of the monthly average of the above up to a maximum of £2500 per month.

A loss making year will be treated as a year of negative profits rather than a year of zero profits for the purposes of the SEISS. This means the loss must be deducted from your profits in the period rather than treated as zero profits as it is until the losses are used.

Neither a brought forward loss nor the personal allowance will be deducted from the profits.

For example:

A sole trader has the following profits and losses for the 3 years and more than 50% of their income stems from self-employment.

£45,000 profit in tax year 2016/2017

£60,000 profit in tax year 2017/2018

£20,000 loss in tax year 2018/2019

First, add £45,000 and £60,000 then deduct £20,000 loss. This gives us a total of £85,000 and dividing this by 3 gives us an average of £28,333. 80% of this would be £22,666.

The grant will be the LOWER of 80% of the average trading profit (here £1,889 which is £22,666/12) or £2,500 per month. Here the grant would be £1,889 per month as it is lower than £2,500 per month.

If the trade only commenced in the 17/18 or 18/19 years the average profits would be divided by the number of years of trading rather than by 3 years.

To be eligible for the SEISS grant, the self-employed profits must be no more than £50,000 but more than 50% of total taxable income for either:

The tax year 2018/19, or

The average of the tax years 2016/17, 2017/18 and 2018/19.

When applying the averaging test, trade losses are taken into account and the other personal income is also averaged.

Complicated? Not sure? Then email us at info@prioryaccounting.co.uk and we’ll call you back. We don’t have phone access yet. The link below from HMRC is regularly updated so keep an eye out there too.

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

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