SEISS - Average earnings?

calcotti

mcooke999 said:

This is what the second HMRC agent has said:

To work out your eligibility we 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 are not eligible based on your 2018 to 2019 Self Assessment tax return, we will look at the tax years 2016 to 2017, 2017 to 2018 and 2018 to 2019. There is more information on the GOV.UK website.

That is to work out if you are eligible. It is not the way the grant is calculated.

find these:

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

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

We will work out your average trading profit by adding together your total trading profits or losses for the 3 tax years, then we will divide by 3.
The grant will be 80% of your average monthly trading profits, paid out in a single instalment covering 3 months, and capped at £7,500 altogether. The online service will tell you how we’ve worked the grant out.

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

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

Jeremy535897

It is wrong. The idea that a year will be discarded if self employment income is less than other income is a myth. See guidance:

Eligibility

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

Jeremy535897

I think I now see where the misconception is coming from. It is from this example. Such cases will be very rare.:

If you traded in 2 tax years but not continuously

We will work out your average trading profit based on the tax year 2018 to 2019 only, even if you were self-employed 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

mcooke999

What's confused the situation is the first agent I spoke to was adament that any years where your self employed profits were less than 50% of your total income would be ignored. I told him my figures and he said 16/17 would be ignored. He might be wrong but he even said they have guidance notes from HMRC which stated it. 

I'll probably ring them in the morning to try and get some sort of clarity. I suspect it's probably a mistake and it's just going to be an average of all 3 years.

Jeremy535897

Let us know what they say. If they say they have guidance that you can ignore a year with less than 50% trading income, ask for a copy  or URL.

rubble2

Ok, I thought I had a handle on this situation until I saw this thread.
My situation is as follows:-
16/17 trading profit less than 50K, SE earnings more than 50% of income
17/18 as above
18/19 trading profit less than 50K but SE earnings less than 50% due to pension income.
I assumed that profit from 18/19 would be discarded and only the two previous years profit would count towards SEISS. But if I am understanding what is being said here correctly once I qualify for SEISS the fact that 18/19 profit is less than 50% of earnings doesn't matter and all three tax year's profits will count towards SEISS grant - is that correct?

calcotti

rubble2 said:...once I qualify for SEISS the fact that 18/19 profit is less than 50% of earnings doesn't matter and all three tax year's profits will count towards SEISS grant - is that correct?

That is my understanding.

Jeremy535897

I assume your self employed trading income for the 3 years 2016/17, 2017/18 and 2018/19 is at least equal to your other taxable income for those 3 years? If not you won't be eligible.

bobbooo

mcooke999 said:

I've been self employed for around 7 years now but only been doing it full time for the last two years. Before that I was working full time in employment whilst doing my self employed business in the evenings and weekends to build it up...

My 18/19 & 19/20 turnovers are therefore based on full time self employment, however, the 16/17 tax return is basically only based on working around 1 day a week self employed... so doesn't add up to very much at all.

Will this reduce the amount of SEISS grant I can claim or will HMRC ignore it? Obviously I'm grateful for anything I can get at the moment but I'm wondering if they will ignore this year as it was so small or count it towards the average?

It's situations like these, and those in which people started being self-employed at the end of the 16/17 or 17/18 tax years, that show what's needed is for HMRC to use the median, rather than the mean average profit, i.e. the middle value when the profits for each year are ordered in size. This is a small, simple change that will stop very low initial-year profits due to arbitrary reasons like starting your business late in the tax year unfairly skewing the average profit and so in some cases vastly decreasing the grant given.

For example, as it stands someone who started being self-employed on the last day of the 16/17 tax year would only receive approximately 50% of their true yearly profits (80% of what is effectively two years’ profits averaged over three years, so 80% of 66% ~ 50%), whereas someone else who started their business a day later, on the first day of the 17/18 tax year, with exactly the same yearly profits, would receive the 80% that everyone should be getting.

This is absolutely absurd, unfairly and arbitrarily punishing those who started their business partway through the tax year for no logical reason whatsoever, except to limit the government’s pay-out. It's scandalous. I really don’t understand why this hasn’t had any media attention. How can we get MSE and Martin Lewis to call the government out on this and pressure them for urgent change just as they commendably did with the furlough/rehire issue? This will unfairly affect a huge number of people, but can be easily fixed with a small change as I said from mean average to median profits.

rubble2

calcotti said:

rubble2 said:...once I qualify for SEISS the fact that 18/19 profit is less than 50% of earnings doesn't matter and all three tax year's profits will count towards SEISS grant - is that correct?

That is my understanding.

Thank you, looks like I am due more than I thought - happy days