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

News article

This guidance was withdrawn on 1 October 2021.

Claims for the fifth SEISS grant have now closed. The last date for making a claim was 30 September 2021.

You can:

If you received a grant payment, you must report this on your tax return. Find out how to report SEISS grants.


HMRC look at your trading profits and non-trading income on your Self Assessment tax returns to check if you meet the eligibility criteria for the fifth grant.

They also use your average trading profits to work out how much grant you’ll get.

Trading profits

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

  • 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 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'.

Any non-trading income, such as investment income, will be deducted from the partnership’s total income before HMRC work out your share of the profits.

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 2019 to 2020
Trading income £21,000 £26,000 £16,000 £21,000
Trading allowance claimed 0 £1,000 £1,000 £1,000
Trading profit £21,000 £25,000 £15,000 £20,000


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

  2019 to 2020
Trade 1 profit £60,000
Trade 2 loss £20,000
Trading profit £40,000

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)

How HMRC work out your trading profit and non-trading income eligibility

How HMRC work out your eligibility may depend on how many years you have been trading.

If you have different circumstances it can also affect your eligibility.

To be eligible for a grant, your trading profits must be both of the following:

  • no more than £50,000
  • equal to or more than your non-trading income

If you started trading in 2019 to 2020
HMRC will only use your trading profit and non-trading income from your 2019 to 2020 tax return to work out if you’re eligible.

If you have traded for longer
HMRC will work out your eligibility based on your tax returns for either:

  • the tax year 2019 to 2020
  • an average of the tax years 2016 to 2017, 2017 to 2018, 2018 to 2019 and 2019 to 2020 - if you are not eligible based on 2019 to 2020 alone

If you have a gap in the years you’ve traded, HMRC will only use your most recent tax returns after the gap, to work out your eligibility.

Example – if you’re not eligible based on your 2019 to 2020 tax return
In your 2019 to 2020 Self Assessment tax return you made a loss of £10,000 and your non-trading income was £15,000.

You would not be eligible based on your 2019 to 2020 tax return alone because your non-trading income is greater than your trading profits.

HMRC will look at your previous returns to work out if you’re eligible.

 

2016 to
2017

2017 to
2018
2018 to
2019
2019 to
2020
Average trading profit
(4 tax years)
Total
Trading profit £50,000 £50,000 £36,000 -£10,000 £31,500 £126,000

  2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 Total

Non-trading
income

£15,000 £15,000 £16,000 £15,000 £61,000

In this example, you would still be eligible because:

  • your average trading profit for the 4 tax years is £31,500 - which is no more than £50,000
  • the sum of your trading profits for the 4 tax years is £126,000 - which is more than the sum of your non-trading income of £61,000 for those years

How HMRC work out partnership eligibility

If a partnership started trading in the tax year 2019 to 2020 and made £100,000 in trading profits, and the profits are distributed 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.

How HMRC work out your average trading profits and grant amount

If you’re eligible, HMRC will use an average of your trading profits from up to 4 years’ of tax returns to work out your grant.

If you have a gap in the years you’ve traded, HMRC will only use your most recent returns after the gap, to work out the grant.

The fifth SEISS grant is worked out at either:

  • 80% of 3 months’ average trading profits, capped at £7,500
  • 30% of 3 months’ average trading profits, capped at £2,850

If you started trading in 2019 to 2020
If you only traded in the tax year 2019 to 2020, HMRC will only use those trading profits to work out your grant.

If you have traded for all 4 tax years
To work out your average trading profits HMRC add together profits and losses for all 4 tax years, then divide by 4.

Example

  2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 Average trading profits for the 4 tax years
Trading profit or loss £60,000 £60,000 -£30,000 loss £10,000 £25,000

If you did not trade in the tax year 2016 to 2017
To work out your average trading profits HMRC add together all profits and losses for the tax years 2017 to 2018, 2018 to 2019 and 2019 to 2020, then divide by 3.

Example

  2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 Average trading profits for the 3 tax years
Trading profit Did not trade £25,000 £45,000 £47,000 £39,000

If you did not trade in the tax year 2017 to 2018
HMRC will work out your average trading profits based on the tax years 2018 to 2019 and 2019 to 2020, even if you traded in the tax year 2016 to 2017.

Example

  2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 Average trading profits for 2 years
Trading profit £25,000 Did not trade £45,000 £49,000 £47,000

If you did not trade in the tax year 2018 to 2019
HMRC will work out your average trading profits based on the tax year 2019 to 2020, even if you traded in the tax years 2016 to 2017 and 2017 to 2018.

Example

  2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 Average trading profits
Trading profit £25,000 £45,000 Did not trade £30,000 £30,000

If you did not trade in 2 consecutive tax years
HMRC will work out your average trading profits based on your most recent returns.

Example 1

  2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 Average trading profits
Trading profit or loss - £2,000 loss Did not trade Did not trade £35,000 £35,000

Example 2

  2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 Average trading profits for 2 years
Trading profit or loss Did not trade Did not trade - £3,000 loss £40,000 £18,500

First published 15 April 2020