Self-employed and made a loss year 1

Ambitious-Deb

Hi,
I was hoping someone might have seen some guidance on this. I became self-employed in 17/18 as a minor sideline to my main employment. I made a loss but filled in a tax return to be honest. In 18/19 i went completely self-employed and made a healthy profit. 

Does anyone know if they will take both years into account when working out my payment in june, even though i wasn't majority self-employed for 17/18? Obviously, since i made zero profil in 17/19, it would cut my payment in half. 

Thanks
Deb 

Illusionary

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

You may already have seen this, but from the guidance as linked above:

If you started trading between 2016-19, HMRC will only use those years for which you filed a Self-Assessment tax return.

If you have not submitted your Income Tax Self-Assessment tax return for the tax year 2018-19, you must do this by 23 April 2020.

How much you’ll get

You’ll get a taxable grant which will be 80% of the average profits from the tax years (where applicable):

• 2016 to 2017
• 2017 to 2018
• 2018 to 2019

To work out the average HMRC will add together the total trading profit for the 3 tax years (where applicable) then divide by 3 (where applicable), and use this to calculate a monthly amount.

I can see some scope for ambiguity here, but my reading is that the loss year *would* be taken into account - likely as nil rather than a negative figure. As a further complication, though, I've not seen anything that makes specific comment on how carry-forward loss relief might impact on the calculations - as an educated guess, there wouldn't be an impact, but we likely need either further guidance or the legislation itself to be sure. 

Jeremy535897

This is a question I raised some time ago. We don't know the answer. It would make sense to average the profit and the loss. We don't even know if there will be any detailed legislation. Maybe there will be statutory instruments with further guidance, like universal credit.The enabling legislation is in the Coronavirus Act 2020, which amends the Industrial Development Act 1982.

Ambitious-Deb

Thanks for coming back to me. I was hoping that this I was majority employed for that first year that it would be disregarded completely. I know that was probably wishful thinking! 

Jeremy535897

Ambitious-Deb said:

Thanks for coming back to me. I was hoping that this I was majority employed for that first year that it would be disregarded completely. I know that was probably wishful thinking! 

We just don't know. Counting a loss in a year may cause some people to fail the 50% test, and others to duck under the £50,000 cap.

Illusionary

Clarifications published today - see in particular the underlined point:

How much you’ll get

You’ll get a taxable grant based on your average trading profit over the 3 tax years:

• 2016 to 2017
• 2017 to 2018
• 2018 to 2019

To work out the average trading profit we will add together your total trading profits or losses for the 3 tax years then divide by 3.

If you have not submitted Self Assessment tax returns for all 3 years

We will work out your average trading profit based on continuous periods of self-employment, which will be either:

• the tax years 2017 to 2018 and 2018 to 2019
• the tax year 2018 to 2019 only, even if you were self-employed in the tax year 2016 to 2017

The grant will be 80% of your average trading profit, divided by 12 which will give a monthly amount. We will pay this or up to a maximum of £2,500 a month, whichever is lower.

We’ll pay the grant directly into your bank account, in one instalment.

Jeremy535897

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