The profit of a self-employed person
The earnings of a self-employed person are to be entered gross,
including any amount due in tax, National Insurance or pension
contributions, and Enterprise Allowance or payments made under section 2
of the Enterprise and New Towns (Scotland) Act 1990.
Do not include items ignored anyway as earnings, such as
- any payment in kind, or
- earnings paid abroad which cannot be brought to this country,
or
- the cost of converting earnings from another currency into
sterling.
Eligible expenses can then be taken from the gross profit figure to
arrive at the net profit.
Ineligible expenses
Deductions are not permitted for:
- Capital expenditure or depreciation of capital assets
- Money used to set up or expand the business
- Earlier losses
- Repayment of capital on any loans taken out for the business
- Business entertainment expenses
- Any expense that has been "unreasonably incurred"
- Any debts, except bad debts proved to be such, although expenses
incurred in recovering a debt are eligible expenses
- Offsetting losses in one self-employment against profit in
another
It should be noted that this approach to eligible expenses is more
restrictive than that of HMRC for income tax purposes, so any accounts
prepared for tax purposes need to be considered in the light of this.
Eligible expenses
Deductions are allowed for sums expended for the purposes of the
business. In particular, deductions are allowed for:
- Repayment of capital on any loan used for the replacement of
business equipment or machinery or the repair of an existing business
asset not covered by insurance
- The excess of VAT paid out over VAT received
- Income spent repairing business assets not covered by insurance
- Interest payments on loans taken out for the purpose of the
business
Housing Renewal Grant Regs 96 Reg 26