Self-employed earners

All cash, cheque or credit card payments received in return for goods and services supplied, should be included as a gross receipt of the business.

Money that is due to be paid to a business in a country outside the UK should be included as a gross receipt only when it is received by the business, for example when it is paid:

1. to any branch or official representative of the business

or

2. into any business account.

If a payment is made in a foreign currency other than pounds sterling, any bank charges or commission for converting the money into pounds sterling must be disregarded when calculating earnings. This ensures we only count the actual receipt to the business.

If a payment is due from a country where there is a legal restriction preventing the money from being transferred to the UK, then this money should be disregarded for as long as the restriction remains in place. It should only be counted as earnings once it can lawfully be transferred and is actually received by the business.

This disregard applies when the client is living in Great Britain. If the client is temporarily living abroad but still eligible for Carer Support Payment under the rules about being outside the UK, this disregard does not apply. The money would be counted as earnings from the first day of the award week that the business actually receives the money (e.g. into a foreign account), even if that money cannot be transferred to the UK.

Example of earnings payable abroad

Ellen is in receipt of Carer Support Payment. They are self-employed on a part-time basis in an import/export business. During the assessment period their business received £1,000 in a country that was, and currently is, prohibiting the transfer of funds to the UK. The client adviser calculates the earnings as follows

Gross receipts (including the £1,000 received abroad) = £5,000

Deductions for allowable expenses, notional income tax and social security contributions and half of a premium for a personal pension = £2,500

Net profit = £2,500

Divided by the number of weeks in the assessment period = £48.07

less

Normal earnings disregard = £20.00

less

Special disregard for earnings abroad

(£1,000 divided by 52)

= £19.23

Earnings to be taken into account

(£48.07 - £20.00 - £19.23)

= £8.84

During the year that the earnings are taken into account, the country lifts its prohibition against the transfer of funds to the UK. The client adviser revises the earnings disregard for the year, the amount of the earnings to be taken into account increases to £28.07 (£48.07 - £20.00).

This would increase their earnings for the assessment period. This may affect their entitlement to Carer Support Payment if their overall earnings were close to the earnings threshold.

An allowance may be payable under certain schemes to assist people to become self-employed¹. In a business partnership one or all of the partners may be receiving payments.

         1 E & T Act 73, s 2; Enterprise and New Towns (Scotland) Act 1990, s 2

Any allowance paid into the self-employed earner's business bank account during the assessment period should be included in the gross receipts of the business.

Note: grants from the Prince's Trust are not included in the gross receipts of a business and are instead considered capital receipts and disregarded.

Some businesses may receive subsidies, for example businesses involving farming or agriculture receive subsidies from the Department for the Environment, Food and Rural Affairs (DEFRA).

This should be counted as earnings.

A business may also receive a payment of compensation from another person because of disruption to the business. Such payments should be included in the gross receipts of the business.

A self-employed earner may draw money from the business for day-to-day expenses. These drawings, known as personal drawings, are in anticipation of profits or business income and should be included as part of the gross receipts of the business. It is possible for personal drawings to exceed the eventual profit.

Where drawings are made in excess of the profits of the business they should be treated as capital in the hands of the claimant. Money taken from the business in excess of profits comes from:

1. capitalised profits from earlier years

or

2. increased borrowing.

In 1. or 2. the drawings are withdrawals from the capital of the business.

If personal drawings are declared the client adviser should establish if the amount has been deducted from the gross receipt. If it has, the amount of the drawings should be added back to the amount of the gross receipts.

A self-employed earner who is a sole owner of, or a partner in, a business may pay interest to the business on money taken as personal drawings. These payments should be included in the gross receipts of the business.

Example of personal drawings

Kim is a self-employed earner. Their assessment period is twelve months. They provide supporting information of their gross receipts and expenses for the assessment period. Personal drawings are shown as an expense and are not included in the gross receipts of the business.

The client adviser determines that:

1. the personal drawings should be added to the gross receipts of the business

and

2. allowable expenses should be deducted from this new gross receipts figure.

Example 2

Tahira is a self-employed earner. Their assessment period is twelve months. They provide supporting information of their gross receipts and expenses for the assessment period.

Personal drawings are shown as an expense and are not included in the gross receipts of the business. It appears from the figures that the personal drawings may exceed any profit.

The client adviser calculates the net profit without including the personal drawings as a gross receipt of the business. This calculation shows that the personal drawings exceed the net profit of the business. The client adviser determines that:

1. personal drawings equal to the amount of the net profit previously calculated should be added to the gross receipts of the business

and

2. allowable expenses should be deducted.

Any income received from letting or sub-letting of business premises or land should be included in the gross receipts of the business. Any expense connected with the letting should be included with other business expenses.

The amount received from the sale of a capital asset should not be included in the gross receipts of the business, unless the asset was part of the stock in trade of the business¹.1 R(FC) 1/97

Example of sale of assets

Ahmed runs a business that manufactures computers. The sale of these computers is included in the gross receipts of the business. But when Ahmed sells a computer that they use to keep their business records on, the amount received for this computer is not included in the gross receipts of the business.

Tips or gratuities received in response to the service provided by a self-employed earner, for example, as a hairdresser, taxi driver or coach driver, should be included in the gross receipts of the business.

Any tips or gratuities that are made as a gift unconnected to the self-employment should not be included in the gross receipts of the business.

If a self-employed earner is paid in kind the client adviser should decide a monetary value equal to what would have been paid and include this amount in the gross receipts of the business.

Example of payments in kind

Mel is in receipt of Carer Support Payment. They do some work for a local farmer on a self-employed basis. The farmer pays Mel for the work in the form of farm produce. The client adviser values the produce at what it would have cost if bought from the farmer (or a local grocer) and includes that amount in the gross receipts of the business.

Self-employed earners who are registered for VAT are required to submit three monthly returns to HMRC showing amounts of both:

1. VAT collected from customers - known as output tax

2. VAT paid by the self-employed person to a supplier - known as input tax.

If 1. exceeds 2. the self-employed person pays the difference to HMRC. If 2. exceeds 1. the self-employed person receives the difference from HMRC.

Where a business is registered for VAT and in the assessment period the amount received is greater than the amount paid to HMRC the difference should be included in the gross receipts of the business.

Note: VAT can also be an allowable expense of the business View the Enter allowable business expenses into the calculator guidance.