SCHEDULE 1 CALCULATION OF N AND M
PART I EARNINGS
Chapter 2Earnings of a self-employed earner
3
1
F12Where paragraph 2C applies, and subject to sub-paragraphs (2) and (3) and to paragraph 4, “earnings" in the case of employment as a self-employed earner means the gross receipts of the employment including, where an allowance in the form of periodic payments is paid under section 2 of the Employment and Training Act 1973 M1 or section 2 of the Enterprise and New Towns (Scotland) Act 1990 M2 in respect of the relevant week for the purpose of assisting him in carrying on his business, the total of those payments made during the period by reference to which his earnings are determined under paragraph 5.
2
Earnings shall not include—
a
any allowance paid under either of those sections in respect of any part of the period by reference to which his earnings are determined under paragraph 5 if no part of that allowance is paid in respect of the relevant week;
b
any income consisting of payments received for the provision of board and lodging accommodation unless such payments form the largest element of the recipient’s income.
3
F1Subject to sub-paragraph (7), there shall be deducted from the gross receipts referred to in sub-paragraph (1)—
a
F2except in a case to which paragraph 4 applies, any expenses which are reasonably incurred and are wholly and exclusively defrayed for the purposes of the earner’s business in the period by reference to which his earnings are determined under paragraph 5(1) or, where paragraph 5(2) applies, any such expenses relevant to the period there mentioned (whether or not defrayed in that period);
b
c
any amount in respect of income tax determined in accordance with sub-paragraph (5);
d
any amount in respect of National Insurance contributions determined in accordance with sub-paragraph (6);
e
one half of any premium paid in respect of a retirement annuity contract or a personal pension schemeF7, or, where that scheme is intended partly to provide a capital sum to discharge a mortgage or charge secured upon the parent’s home, 37.5 per centum of the contributions payable.
4
For the purposes of sub-paragraph (3)(a)—
a
such expenses include—
i
repayment of capital on any loan used for the replacement, in the course of business, of equipment or machinery, or the repair of an existing business asset except to the extent that any sum is payable under an insurance policy for its repair;
ii
any income expended in the repair of an existing business asset except to the extent that any sum is payable under an insurance policy for its repair;
iii
any payment of interest on a loan taken out for the purposes of the business;
b
such expenses do not include—
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ii
any capital expenditure;
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vi
any expenses incurred in providing business entertainment;
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F95
For the purposes of sub-paragraph (3)(c), the amount in respect of income tax shall be determined in accordance with the following provisions—
a
subject to head (c), an amount of chargeable earnings F13calculated as if it were equivalent to any personal allowance which would be applicable to the earner by virtue of the provisions of Chapter 1 of Part VII of the Income and Corporation Taxes Act 1988 (personal reliefs) shall be disregarded;
b
F10subject to head (bb), an amount equivalent to income tax shall be calculated with respect to taxable earnings at the rates applicable at the effective date;
F11bb
where taxable earnings are determined over a period of less or more than one year, the amount of earnings to which each tax rate applies shall be reduced or increased in the same proportion to that which the period represented by the chargeable earnings bears to the period of one year;
c
the amount to be disregarded by virtue of head (a) shall be calculated by reference to the yearly rate applicable at the effective date, that amount being reduced or increased in the same proportion to that which the period represented by the chargeable earnings bears to the period of one year;
d
in this sub-paragraph, “taxable earnings" means the chargeable earnings of the earner following the disregard of any applicable personal allowances.
6
For the purposes of sub-paragraph (3)(d), the amount to be deducted in respect of National Insurance contributions shall be the total of—
a
the amount of Class 2 contributions (if any) payable under F17section 11(2) or, as the case may be, (8) of the Contributions and Benefits Act; and
b
the amount of Class 4 contributions (if any) payable under section 15(2) of that Act,
at the rates applicable F4to the chargeable earnings at the effective date.
F87
In the case of a self-employed earner whose employment is carried on in partnership or is that of a share fisherman within the meaning of the Social Security (Mariners’ Benefits) Regulations 1975, sub-paragraph (3) shall have effect as though it requires—
a
a deduction from the earner’s estimated or, where appropriate, actual share of the gross receipts of the partnership or fishing boat, of his share of the sums likely to be deducted or, where appropriate, deducted from those gross receipts under heads (a) and (b) of that sub-paragraph; and
b
a deduction from the amount so calculated of the sums mentioned in heads (c) to (e) of that sub-paragraph.
8
F5In sub-paragraphs (5) and (6) “chargeable earnings” means the gross receipts of the employment less any deductions mentioned in sub-paragraph (3)(a) and (b).