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PART IIIE+W+S SELF-EMPLOYED EARNERS

Calculation of earnings of self-employed earnersE+W+S

11.—(1) Except where paragraph (2) applies, where a claimant’s earnings consist of earnings from employment as a self-employed earner the weekly amount of his earnings shall be determined by reference to his average weekly earnings from that employment—

(a)over a period of one year; or

(b)where the claimant has recently become engaged in that employment or there has been a change which is likely to affect the normal pattern of business, over such other period as may, in any particular case, enable the weekly amount of his earnings to be determined more accurately.

(2) Where the claimant’s earnings consist of [F1any items to which paragraph (2A) applies] those earnings shall be taken into account over a period equal to such number of weeks as is equal to the number (less any fraction of a whole number) calculated in accordance with the formula—

where—S is the earnings;

T is the relevant earnings limit plus one penny; and

U is the total of the sums which would fall to be disregarded or deducted as appropriate under regulation 13(2) or (3) (calculation of net profit of self-employed earners).

[F2(2A) This paragraph applies to—

(a)royalties or other sums paid as a consideration for the use of, or the right to use, any copyright, design, patent or trade mark; or

(b)any payment in respect of any—

(i)book registered under the Public Lending Right Scheme 1982, or

(ii)work made under any international public lending right scheme that is analogous to the Public Lending Right Scheme 1982,

where the claimant is the first owner of the copyright, design, patent or trade mark, or an original contributor to the book or work concerned.]

(3) The period mentioned in paragraph (2) shall begin on the date on which the payment is treated as paid under regulation 7 (date on which earnings are treated as paid).

Textual Amendments

Modifications etc. (not altering text)

C1Regs. 11-14 modified by S.I. 2002/1792, reg. 17B (as inserted (6.10.2003) by State Pension Credit (Consequential, Transitional and Miscellaneous Provisions) Regulations 2002 (S.I. 2002/3019), regs. 1(2)(b), 23(i)) (as amended (5.8.2016) by (S.I. 2016/732), arts. 1(1), 4(2))

Earnings of self-employed earnersE+W+S

12.—(1) F3... “earnings", in the case of employment as a self-employed earner, means the gross receipts of the employment and shall include any allowance 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 to the claimant for the purpose of assisting him in carrying on his business.

F4(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F3Words in reg. 12(1) omitted (with effect in accordance with reg. 1(3) of the amending S.I.) by virtue of Social Security Benefit (Computation of Earnings) (Amendment) Regulations 2007 (S.I. 2007/2613), regs. 1(3), 2(2)(a)

F4Reg. 12(2) omitted (with effect in accordance with reg. 1(3) of the amending S.I.) by virtue of Social Security Benefit (Computation of Earnings) (Amendment) Regulations 2007 (S.I. 2007/2613), regs. 1(3), 2(2)(b)

Modifications etc. (not altering text)

C1Regs. 11-14 modified by S.I. 2002/1792, reg. 17B (as inserted (6.10.2003) by State Pension Credit (Consequential, Transitional and Miscellaneous Provisions) Regulations 2002 (S.I. 2002/3019), regs. 1(2)(b), 23(i)) (as amended (5.8.2016) by (S.I. 2016/732), arts. 1(1), 4(2))

Marginal Citations

M11973 c.50; section 2 was amended by section 25(1) of the Employment Act 1988 (c.19), by Part I of Schedule 7 to the Employment Act 1989 (c.38) and by section 47(1) of the Trade Union Reform and Employment Rights Act 1993 (c.19).

Calculation of net profit of self-employed earnersE+W+S

13.—(1) For the purposes of regulations 3 (calculation of earnings) and 11 (calculation of earnings of self-employed earners), the earnings of a claimant to be taken into account shall be—

(a)in the case of a self-employed earner who is engaged in employment on his own account, the net profit derived from that employment;

(b)in the case of a self-employed earner whose employment is carried on in partnership or is that of a share fisherman his share of the net profit derived from that employment less—

(i)an amount in respect of income tax and of social security contributions payable under the Contributions and Benefits Act calculated in accordance with regulation 14 (deduction of tax and contributions for self-employed earners); and

(ii)one half of any premium paid in the period that is relevant under regulation 11 in respect of a retirement annuity contract or a personal pension scheme;

(c)in paragraph (b) “share fisherman" means any person who—

(i)is ordinarily employed in the fishing industry otherwise than under a contract of service, as a master or member of the crew of any fishing boat manned by more than one person, and is remunerated in respect of that employment in whole or in part by a share of profits or gross earnings of the fishing boat; or

(ii)has ordinarily been so employed, but who by reason of age or infirmity permanently ceases to be so employed and becomes ordinarily engaged in employment ashore in Great Britain, otherwise than under a contract of service, making or mending any gear appurtenant to a fishing boat or performing other services ancillary to or in connection with that boat and is remunerated in respect of that employment in whole or in part by a share of the profits or gross earnings of that boat and has not ceased to be ordinarily engaged in such employment.

(2) Except in a case to which paragraph (3) applies, there shall be disregarded or deducted as appropriate from a claimant’s net profit—

(a)any sum, where applicable, specified in Schedule 1; and

(b)any relevant child care charges to which Schedule 2 applies up to a maximum deduction in respect of any claimant of £60 per week.

(3) In the case of entitlement to [F5carer’s allowance] under section 70 of the Contributions and Benefits Act M3 there shall be disregarded or deducted as appropriate from a claimant’s net profit—

(a)any sum where applicable, specified in Schedule 1; and

(b)any care charges to which Schedule 3 applies up to a maximum deduction, in respect of such care charges incurred by any claimant, of 50% of his net profit less those sums, if any, specified in Schedule 1 which are disregarded.

(4) For the purposes of paragraph (1)(a), the net profit of the employment shall, except where paragraph (10) applies, be calculated by taking into account the earnings of the employment over the period determined under regulation 11 (calculation of earnings of self-employed earners) less—

(a)subject to paragraphs (6) to (8), any expenses wholly and exclusively defrayed in that period for the purposes of that employment;

(b)an amount in respect of—

(i)income tax; and

(ii)social security contributions payable under the Contributions and Benefits Act, calculated in accordance with regulation 14 (deduction of tax and contributions for self-employed earners); and

(c)one half of any premium paid in the period that is relevant under regulation 11 in respect of a retirement annuity contract or a personal pension scheme.

(5) For the purposes of paragraph (1)(b), the net profit of the employment shall be calculated by taking into account the earnings of the employment over the period determined under regulation 11 less, subject to paragraphs (6) to (8), any expenses wholly and exclusively defrayed in that period for the purposes of that employment.

(6) Subject to paragraph (7), no deduction shall be made under paragraph (4)(a) or (5) in respect of—

(a)any capital expenditure;

(b)the depreciation of any capital asset;

(c)any sum employed or intended to be employed in the setting up or expansion of the employment;

(d)any loss incurred before the beginning of the period determined under regulation 11 (calculation of earnings of self-employed earners);

(e)the repayment of capital on any loan taken out for the purposes of the employment;

(f)any expenses incurred in providing business entertainment.

[F6(g)where the claimant provides accommodation to another person in the dwelling the claimant occupies as his home, any expenses defrayed by the claimant in providing the accommodation to that person (including any defrayed in providing board as well as lodging).]

(7) A deduction shall be made under paragraph (4)(a) or (5) in respect of the repayment of capital on any loan used for—

(a)the replacement in the course of business of equipment or machinery; and

(b)the repair of an existing business asset except to the extent that any sum is payable under an insurance policy for its repair.

(8) [F7The adjudicating authority The Secretary of State shall refuse to make a deduction[F7A deduction shall not be made]] in respect of any expenses under paragraph (4)(a) or (5) where [F8the adjudicating authority [F8the Secretary of State]] is not satisfied that the expense has been defrayed or, having regard to the nature of the expense and its amount, that it has been reasonably incurred.

(9) For the avoidance of doubt—

(a)a deduction shall not be made under paragraph (4)(a) or (5) in respect of any sum unless it has been expended for the purposes of the business;

(b)a deduction shall be made thereunder in respect of—

(i)the excess of any VAT paid over VAT received in the period determined under regulation 11 (calculation of earnings of self-employed earners);

(ii)any income expended in the repair of an existing 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 employment.

(10) Where a claimant is engaged in employment as a child minder the net profit of the employment shall be one-third of the earnings of that employment, less—

(a)an amount in respect of—

(i)income tax; and

(ii)social security contributions payable under the Contributions and Benefits Act, calculated in accordance with regulation 14 (deduction of tax and contributions for self-employed earners); and

(b)one half of any premium paid in respect of a retirement annuity contract or a personal pension scheme.

(11) Notwithstanding regulation 11 (calculation of earnings of self-employed earners) and the foregoing paragraphs, [F9an adjudicating authority [F9the Secretary of State]] may assess any item of a claimant’s earnings or expenditure over a period other than that determined under regulation 11 as may, in the particular case, enable the weekly amount of that item of earnings or expenditure to be determined more accurately.

(12) For the avoidance of doubt where a claimant is engaged in employment as a self-employed earner and he is engaged in one or more other employments as a self-employed or employed earner any loss incurred in any one of his employments shall not be offset against his earnings in any other of his employments.

Textual Amendments

F6Reg. 13(6)(g) added (with effect in accordance with reg. 1(3) of the amending S.I.) by Social Security Benefit (Computation of Earnings) (Amendment) Regulations 2007 (S.I. 2007/2613), regs. 1(3), 2(3)

Modifications etc. (not altering text)

C1Regs. 11-14 modified by S.I. 2002/1792, reg. 17B (as inserted (6.10.2003) by State Pension Credit (Consequential, Transitional and Miscellaneous Provisions) Regulations 2002 (S.I. 2002/3019), regs. 1(2)(b), 23(i)) (as amended (5.8.2016) by (S.I. 2016/732), arts. 1(1), 4(2))

Marginal Citations

M31988 c.1; sections 257 to 257F were substituted for section 257 by section 33 of the Finance Act 1988 (c.39); section 259 was amended by sections 30 and 35 of the Finance Act 1988, section 20 of the Finance (No. 2) Act 1992 (c.48), and section 77 and Schedule 8, paragraph 6 of the Finance Act 1994 (c.9).

Deduction of tax and contributions for self-employed earnersE+W+S

14.—(1) The amount to be deducted in respect of income tax under regulation 13(1)(b)(i), (4)(b)(i) or (10)(a)(i) (calculation of net profit of self-employed earners) shall be calculated on the basis of the amount of chargeable income and as if that income were assessable to income tax at the [F10basic rate, or in the case of a Scottish taxpayer, the Scottish basic rate, of tax less only the personal reliefs to which the claimant is entitled under Chapters 2, 3 and 3A of Part 3 of the Income Tax Act 2007 as are] appropriate to his circumstances; but, if the period determined under regulation 11 (calculation of earnings of self-employed earners) is less than a year, the earnings to which the [F11basic rate, or the Scottish basic rate,] of tax is to be applied and the amount of the personal [F12reliefs] deductible under this paragraph shall be calculated on a pro rata basis.

(2) The amount to be deducted in respect of social security contributions under regulation 13(1)(b)(i), (4)(b)(ii) or (10)(a)(ii) shall be the total of—

(a)the amount of Class 2 contributions payable under section [F1311(2)] or, as the case may be, [F1411(8)] of the Contributions and Benefits Act at the rate applicable at the date [F15 of the determination of the claim or of any subsequent review [F15on which a decision is made by the Secretary of State under Chapter II of Part I of the Social Security Act 1998 or regulations made thereunder]] except where the claimant’s chargeable income is less than the amount specified in section 11(4) of that Act ([F16small profits threshold]) for the tax year in which that date falls; but if the assessment period is less than a year, the amount specified for that year shall be reduced pro rata; and

(b)the amount of Class 4 contributions (if any) which would be payable under section 15 of that Act (Class 4 contributions recoverable under the Income Tax Acts) at the percentage rate applicable at the date of the determination of the claim or of any subsequent review on so much of the chargeable income as exceeds the lower limit but does not exceed the upper limit of profits and gains applicable for the tax year in which that date falls; but if the assessment period is less than a year, those limits shall be reduced pro rata.

(3) In this regulation “chargeable income" means—

(a)except where sub-paragraph (b) applies, the earnings derived from the employment less any expenses deducted under paragraph (4)(a) or, as the case may be, (5) of regulation 13;

(b)in the case of employment as a child minder, one-third of the earnings of that employment.

Textual Amendments

Modifications etc. (not altering text)

C1Regs. 11-14 modified by S.I. 2002/1792, reg. 17B (as inserted (6.10.2003) by State Pension Credit (Consequential, Transitional and Miscellaneous Provisions) Regulations 2002 (S.I. 2002/3019), regs. 1(2)(b), 23(i)) (as amended (5.8.2016) by (S.I. 2016/732), arts. 1(1), 4(2))