SCHEDULE 1 CALCULATION OF N AND M
Chapter 2 Earnings of a self-employed earner
3
1
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 schemeF9, 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—
i
repayment of capital on any other loan taken out for the purposes of the business;
ii
any capital expenditure;
iii
the depreciation of any capital asset;
iv
any sum employed, or intended to be employed, in the setting up or expansion of the business;
v
any loss incurred before the beginning of the period by reference to which earnings are determined;
vi
any expenses incurred in providing business entertainment;
vii
any loss incurred in any other employment in which he is engaged as a self-employed earner.
F65
For the purposes of sub-paragraph (3)(c), the amount of income tax to be allowed against earning shall be calculated—
a
where the earnings are determined over a period of 12 months on the basis of chargeable earnings and as if those earnings, less any personal allowance applicable to the earner under Chapter 1 of Part VII of the Income and Corporation Taxes Act 1988 (Personal Relief), were assessable to income tax at the rates of tax applicable at the effective date; or
b
where the earnings are determined over a period of less than 12 months on the basis of chargeable earnings and as if those earnings, less a proportionate part of any personal allowance applicable to the earner under Chapter 1 of Part VII of the Income and Corporation Taxes Act 1988 (Personal Relief), were assessable to income tax at the rates of tax applicable at the effective date, but the amount of the earnings to which each tax rate applies shall be determined on the basis that the ratio of that amount to the full amount of chargeable earnings to which each tax rate applies is the same as the ratio of the proportionate part of the personal allowance to the full personal allowance.
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 section 11(1) or, as the case may be, F7(3) 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.
F107
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).
4
In a case where a person is self-employed as a childminder the amount of earnings referable to that employment shall be one-third of the gross receipts.
5
1
Subject to sub-paragraphs F12(2) to (3)—
a
where a person has been a self-employed earner for 52 weeks or more including the relevant week, the amount of his earnings shall be determined by reference to the average of the earnings which he has received in the 52 weeks ending with the relevant week;
b
where the person has been a self-employed earner for a period of less than 52 weeks including the relevant week, the amount of his earnings shall be determined by reference to the average of the earnings which he has received during that period.
2
F13Subject to sub-paragraph (2A), where a person who is a self-employed earner provides in respect of the employment a profit and loss account and, where appropriate, a trading account or a balance sheet or both, and the profit and loss account is in respect of a period at least 6 months but not exceeding 15 months and that period terminates within the F1424 months immediately preceding the effective date, the amount of his earnings shall be determined by reference to the average of the earnings over the period to which the profit and loss account relates and such earnings shall include receipts relevant to that period (whether or not received in that period).
F112A
Where the child support officer is satisfied that, in relation to the person referred to in sub-paragraph (2) there is more than one profit and loss account, each in respect of different periods, both or all of which satisfy the conditions mentioned in that sub-paragraph, the provisions of that sub-paragraph shall apply only to the account which relates to the latest such period, unless the officer is satisfied that the latest such account is not available for reasons beyond the control of that person, in which case he may have regard to any such other account which satisfies the requirements of that sub-paragraph.
3
Where a calculation would, but for this sub-paragraph, produce an amount which, in the opinion of the child support officer, does not accurately reflect the normal amount of the earnings of the person in question, such earnings, or any part of them, shall be calculated by reference to such other period as may, in the particular case, enable the normal weekly earnings of that person to be determined more accurately and for this purpose the child support officer shall have regard to—
a
the earnings received, or due to be received, from any employment in which the person in question is engaged, or has been engaged or is due to be engaged;
b
the duration and pattern, or the expected duration and pattern, of any employment of that person.
4
In sub-paragraph (2)—
a
“balance sheet" means a statement of the financial position of the employment disclosing its assets, liabilities and capital at the end of the period in question;
b
“profit and loss account" means a financial statement showing net profit or loss of the employment for the period in question; and
c
“trading account" means a financial statement showing the revenue from sales, the cost of those sales and the gross profit arising during the period in question.