I am involved in a HB appeal where one of the issues is the client's S/E earnings. Over a period of about 3 months client worked about 60 days in various blocks with gaps of 2-3wks in between and periods of no earinings at all before and after. She was on a reasonble daily rate. LA have averaged her income over the 3 months to give her an average weekly income of something in the region of £200. CPAG says S/E earnings should be averaged over an "appropriate period". Would clearly be in clients interest to have her earnings apportioned to the weeks that she actually earned it rather than an overall average for the period. Does anyone have any views on whether this is worth a challenge?

Also, on a few occassions, client received a seperate amount from her client for travel expenses but LA refuse to deduct this. Isn't this a reasonable expense that falls to be deducted or does she also need to be able to prove the expenditure to have it deducted?

I'm not familar with HB regs on s/e, but if they're anything like IS regs 37 & 38 (which they should be), earnings should be averaged over the period the business has been operating. What happens in S/E business is that the first few months (or years) can be loss-making. When did your client actually start S/E? If was 6 months' ago the earnings should be averaged over that period, regardless of paid work- she could have been touting for business 12 months' ago, in which case the clock starts then. Has she got a profit & loss statement for the previous year (if applicable)? Coz that should be used unless there's been a change in circs since. Have all deductions (advertising, consumables, NI & tax- anticipated, not actually paid- use of a room in her home for work- light & heat, use of a vehicle for work- if 40% of time for business, fuel, insurance, tax 'n' stuff can all be apportioned, as can use of phone for business use) been applied? You can pro rata these yearly expenses such as insurance (don't forget public liability if applicable) over the period her business has been operating.

In answer to your specific Qs:
a) Challenge the period of S/E anyway- it starts when she started doing stuff in anticipation of getting paid, not when she first did something that earnt her money.
b) the travel expenses for someone S/E would, I think, have to be shown to be used as expenses in her accounts (she does keep acccounts doesn't she??)otherwise it's just profit.

In my experience LAs and JC+ don't know how to properly calculate S/E earnings. Good luck. Post again if you want some specifics.

Thank you for your thoughts on that one Rob. I think this was really about the chances of restricting the period to the weeks actually worked, rather than extending the period to reduce the average. In light of your very helpful comments I've given this some more thought and I think the chances of being able to challenge it on that basis are fairly negligable so I don't think this will be going any further. Thank you for the lesson though, it's an area that comes up from time to time and your points could well be useful in the future!

Having given this a bit of thought (but only a little....), I'm not entirely in agreement with Rob.

It's also worth noting that the rules for IS are slightly different when compared to HB/CTB.

Self-employed income should be calculated such that the amount assessed is a reasonable reflection of earnings for the period to which the earnings are attributed. If someone started business 12 months ago, the period to be assessed is not necessarily 12 months. For example; if business in the first 6 months was negligible (e.g. the "touting for business" period), the amount of income taken into account for that 6 months should be the negligible amount. If the second 6 months was mega-bucks, then the amount taken into account for the second 6 months should reflect that.

In no circumstances can self-employed income be assessed over a period exceeding a year (i.e. if someone has accounts for a period exceeding 15 months, HB/CTB cannot be assessed - but HB can be assessed with say, two sets of accounts covering the same 15 month period so long as neither set exceeds 12 months).

CH/0329/2003 (www.osscsc.gov.uk) is well worth a look - just need to bear in mind that it was before benefit periods were abolished.

A couple of observations about expenses:

I would disagree that "use of a room" is an allowable expense (for HB/CTB purposes). Expenses have to be "real". As an aside, if a room is used solely for business use and a clmt insists a portion of his/her rent is allowable; fine, allow it. But, correspondingly, the eligible rent should be reduced for HB purposes.

Travel expenses can be tricky; but "home to base" expenses are not allowable for HB/CTB - a view opposite to that which I held as recently June this year. Travel expenses only count if they are "...for the purposes of the employment.". Courtesy of HBinfo (in terms of the info); R(FC) 1/91 & a link to the HMRC site take a close lood at "home to base" expenses:

www.hmrc.gov.uk/manuals/bimmanual/BIM37605.htm

The HBinfo link is (requires subscription):
www.hbinfo.org/forum/viewtopic.php?t=6628

As for the suggestion that income should be attributable to individual weeks, there are several CDs where it is made clear that income should normally be attributed to period it is in respect of. However, I would be pretty surprised if a Cmmr ever suggested that a week by week approach was the way forward in assessing self-employed income (unless the circumstances were utterly unique, or there were clearly identifiable changes of circumstances - sick / not sick / sick / not sick etc...).

Regards

Late night caffeine/stress-related response:

Re reg 30/38 of HB
My initial posting was to give Sue some general ideas about s/e and was not a comprehensive statement of the law (The value of your capital may go down as well as up. Not for resale as a single unit). I'm not sure about your argument about negligible income followed by mega bucks. If someone makes a loss of £1,000 in the first 10 weeks & a net profit of £3,000 in the next 10 presumably you would say their income is £3,000 over the last 10 wks = £300pw = tap all HB. I'd say £2,000 over 20 wks = £100pw = in with a shout for HB. When did all this £3,000 come in? Was it all earned in the 2nd 10 weeks, or was it payments from work done in wks 5,8 and 9? Did the £560 that they received in wk 13 come from stock they bought in wk 5? (In which case why not start the assessment from that week?) Did they buy stock in wk 1 and are going to have to buy another £1,000 worth in week 21 (when they have to look after a sick relative so can't work?) If that's so, their earnings over 11 weeks are £2,000 (£181.81 pw). How will gardeners, ice-cream sales people and Avon reps be assessed? Will the first 2 lose entitlement in summer (depending on the dryness or wetness, or dead lawns?)and the last in the 2 months' before Xmas (obviously they'd have to a damn good rep)? If someone loses £5k in 1st 6 months and makes £10k in 2nd 6, don't HMRC assess them in the following year on £5k? If so, how can a DM say they earn £20k a year? How come Sue can't pick the assessment period to suit her client, but the DM can to suit themselves (sorry, what I meant is how come the DM can be more objective than the person's accountant)? At what point has someone's earnings become typical and representative? Most business accounts software and those Simplex D style account books give cummulative info anyway. I think there is enough caselaw outwith HB that could be applied and a good case argued about accounts in general to support the above.

Now, if someone breaks a leg so has to employ someone to keep their window-cleaning round going, and so makes little profit due to paying wages, that's a significant change, and I believe re-assessment would be appropriate from when they broke their leg (It's in DMG somewhere).

As to 'use of a room expenses', somewhere in DMG is something about using an electric sewing machine and a heater in a room as an allowable expense. It's difficult not knowing the particulars of the case above, but, if they've got a pc in a study that they need to keep warm and lit to do work, then a small portion of their energy costs could be apportioned to the business. Also, if they're, eg, a milkman or Avon rep, then they would be entitled to offset travel costs. If they run a taxi, hey, now we're talking. If they have to get stock from a warehouse, then that's business use. how about a mobile hairdresser? I once assessed a pigeon trainer(!) Pigeon fanciers (not illegal apparently)used to pay him to drive their pigeons to remote spots and let 'em go for training purposes. I allowed him motoring costs (and some for cleaning spray too).

Then's there's the interest on business loans (but not the loan), replacement of worn out equipment (but not depreciation)...and don't get me started about farmers and livestock.....but hey, I've gone on far too long and the caffeine's wearing off (thank Buddah).

Accountancy is an art, not a science, and I would argue all of the above if it were to put my client at advantage in claiming any benefit.

Hi Rob,

I accept those are arguments that would be put forward. But, I'd be confident (generally) of being able to successfully argue against most of them at Tribunal for an LA. I'll address 2/3 of them (otherwise we'll be exchanging notes for a month of Sundays ).

Room in house: agree with you in terms of business proportions for gas / electricity etc. My angle was the "wear & tear" of the room (a bit like depreciation) which some clmts mark as expenses.

As for 10 weeks / 10 weeks at different money, I think that the CD I quoted (CH/0329/2003) lends significant support to that argument - especially with regard to seasonal work being assessed to distinguish periods of high & low earnings. But, I readily agree that each case will depend on the facts.

As an aside, and not without some degree of hypocrisy, if I was to represent a clmt who had a low income (e.g. seasonally low), I'd argue that the LA should assess the clmt on that low income for that period. Of course, for the high period, I'd argue the LA should assess over a longer "more representative" period.... .

I'd be very interested in the case law you refer to - any chance of links (or citations)?

Regards
Kevin

Link to R(FC) 1/91:

www.rightsnet.org.uk/pdfs/rfc/1_91.pdf

Would everyone please stop calling me SUE?!?!?!?

Having a bit of a gender identity crises out here in the sticks!

That aside I've been interested to follow the debate and there is clearly some room for challenge in a lot of cases (albeit probably not this one!). The circumstances of the case will dictate the method of assessment that is in there best interest. For example, if client has a long loss making period followed by a short period of very high earnings it is in there interest to have income assessed across the second period only, as they may loose HB for that period but retain it for the earlier part. If however the earnings are faily modest, the longer the assessment period the better as this reduces the average income and gives them a shot for at least some HB.

As Rob(erta) says, acountancy is an art not a science.