HMRC will assess your eligibility for the grant based on your total income and trading profits. This guide details how they will do this.
You can use this guide to find out if you’re eligible and how much you may get and if you want my help in assessing your possible grant please get in touch.
Trading profits
HMRC will use the figures on your tax returns for your total trading income (turnover), then deduct any allowable business expenses and capital expenditure.
Allowable expenses include (I have included links to HMRC guidance should you wish to take a look):
- office costs, for example stationery or phone bills
- travel costs, for example fuel, parking, train or bus fares
- clothing expenses, for example uniforms
- staff costs, for example salaries or subcontractor costs
- things you buy to sell on, for example stock or raw materials
- financial costs, for example insurance or bank charges
- costs of your business premises, for example heating, lighting, business rates
- advertising or marketing, for example website costs
- training courses related to your business, for example refresher courses
It also includes:
- any business expenses deducted through the trading allowance
- capital allowances, used to buy assets used in your business
- qualifying care relief
- flat rate expenses such as Use of Home as Office
Thankfully HMRC will not deduct from your trading profits:
- any losses carried forward from previous years
- your personal allowance
If you have more than one trade in the same tax year
HMRC will add together all profits and losses for all these trades to work out your trading profit.
Example 1
If you only traded in the tax year 2018 to 2019, and made a £60,000 profit for your first trade, and then a £20,000 loss for your second trade, your trading profit for that year would be:
Trade 1 £60,000 profit deduct trade 2 £20,000 loss = £40,000
If you traded for more than one year
To work out your average trading profit HMRC will add together all profits and losses for all tax years you’ve had continuous trade.
Example 2
If you made:
- £60,000 profit in tax year 2016 to 2017
- £60,000 profit in tax year 2017 to 2018
- £30,000 loss in tax year 2018 to 2019
- Add £60,000 and £60,000 then deduct £30,000 loss = £90,000
- Then divide £90,000 by 3
Your average trading profit for the 3 tax years would be £30,000.
Example 3
If you did not trade in tax year 2016 to 2017 but made:
- £25,000 of profit in tax year 2017 to 2018
- £45,000 of profit in tax year 2018 to 2019
- Add £25,000 and £45,000 = £70,000
- Then divide £70,000 by 2
Your average trading profit for the 2 tax years would be £35,000.
Total income
Your total income is the total of all your:
- income from earnings
- trading profits
- property income
- dividends
- savings income
- pension income
- miscellaneous income (including social security income)
Eligibility
Your trading profits must be no more than £50,000 and more than half of your total income for either:
- the tax year 2018 to 2019
- the average of the tax years 2016 to 2017, 2017 to 2018, and 2018 to 2019
Example 4
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | Average for the 3 tax years | |
|---|---|---|---|---|
| Trading profit | £50,000 | £50,000 | -£10,000 | £30,000 |
| Pension income | £15,000 | £15,000 | £15,000 | £15,000 |
| Total income | £65,000 | £65,000 | £5,000 | £45,000 |
| Trading profit are more than half of your total income | Yes | Yes | No | Yes |
So even if you made a loss in the tax year 2018 to 2019, you would still be eligible for the grant because your average trading profit for the 3 tax years:
- is £30,000 – which is less than £50,000
- is more than half of your total income of £45,000
How to apply
Please note that you cannot apply for this scheme yet but HMRC will contact you if you are eligible and invite you to apply online.
As your Accountant I have no input as regards this scheme or your past declared profits and cannot influence HMRC in any way but I am here to assist you make the calculations so please get in touch if you wish to.
I hope this helps in calculating what might be due in June when the scheme pays the first grant which will be backdated for 3 months.
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