Coronavirus: How HMRC works out trading profits and non-trading income for the Self-Employment Income Support Scheme

News article

Find out how HMRC will work out your trading profits and non-trading income if you're self-employed or a member of a partnership and have been impacted by coronavirus (COVID-19)

For the third grant, HMRC will check if you meet the eligibility conditions that are based on your trading profits and non-trading income on your Self Assessment tax returns.

You will then need to decide if you meet the other eligibility criteria.

If you're eligible for the third grant, you can make a claim on or before 29 January 2021.

Find out how different circumstances can affect eligibility to the scheme, or amount of grant.

Trading profits

This is shown on your tax calculation as either profits from:

  • self-employment
  • partnerships

HMRC will work out your total trading profit after deducting any allowable expenses such as:

If your annual gross trading income, from one or more trades or businesses is more than £1,000 you may have used the tax-free allowances, instead of deducting any expenses or other allowances.

HMRC will work out your trading profit after deducting any tax-free allowances.

HMRC will work out your share of the partnership's trading profits by taking all partnership income, and then deduct anything that is non-trading income, such as investment income.

HMRC will not deduct from your trading profits:

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

Profits from self-employment
HMRC will work out your trading profit after allowable business expenses by adding any losses brought forward from previous years to the amount shown on your tax return as 'total taxable profits from this business'.

Profits from partnerships
HMRC will work out your share of the partnership's profit after adjustments by adding any losses brought forward from previous years to the amount shown as 'your share of the total taxable profits from the partnership's business'.

Paper short return
Your trading profit after allowable business expenses is shown on your tax return as 'profit'.

Trading profit if you have claimed the trading allowance

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


If you have more than one trade in the same tax year
HMRC will add together all profits and deduct any losses for all these trades to work out your trading profit.

Example

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


If you have traded for all 3 tax years
To work out your average trading profit HMRC add together all profits and losses for all 3 tax years that you've had continuous trade, then divide by 3.

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


If you did not trade in the tax year 2016 to 2017
To work out your average trading profit HMRC add together all profits and losses for the tax years 2017 to 2018 and 2018 to 2019, then divide by 2.

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


If you did not trade in the tax year 2017 to 2018
HMRC will work out your average trading profit based on the tax year 2018 to 2019 only, even if you traded in the tax year 2016 to 2017.

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 is the amount recorded as 'total income received' on your online or paper tax calculation, less your trading income.

This figure does not include losses.

HMRC will work out your non-trading income by adding together all your:

  • income from earnings
  • property income
  • dividends
  • savings income
  • pension income
  • overseas income
  • miscellaneous income (including taxable social security income)

Eligibility

If you have traded for all 3 years HMRC will first look at your 2018 to 2019 Self Assessment tax return. Your trading profits must be no more than £50,000 and at least equal to your non-trading income.

If you're not eligible based on the 2018 to 2019 Self Assessment tax return, HMRC will then look at the tax years 2016 to 2017, 2017 to 2018, and 2018 to 2019.

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 you made a loss in the tax year 2018 to 2019, you would still be eligible because:

  • your average trading profit for the 3 tax years is £30,000 - which is less than £50,000
  • the sum of your trading profits for the 3 tax years is (£90,000) - which is at least equal to the sum of your non-trading income of £45,000 for those years

If you have different circumstances it can affect your eligibility.

How HMRC work out partnership eligibility

If a partnership made £100,000 in trading profits in tax year 2018 to 2019, 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 are no more than £50,000.

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

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


First published 15 April 2020