List business income and expenditure

• Business income
• Business expenditure

In addition to the personal financial statement, a business financial statement is also needed to assess the position of self-employed clients who are sole traders or partners in a business partnership. Read further on for information about the types of business financial statement available and for dealing with other types of self-employed clients.

The business financial statement uses information about how the client’s business has performed in recent months to estimate what income the client is likely to get from the business in the future. The statement takes information about the business’s income and expenditure (running costs) over a set period to work out an average of the profit or loss that the business produced during this time. This information is used to estimate the amount that a self-employed client can expect to take from their business as income, after allowing for income tax and national insurance (NI) liability. The net business income figure (or loss) should be included in the client’s personal financial statement.

Business income

Only income for the business should be included in the business financial statement. Personal income, such as benefit income or employed income, is covered in the personal financial statement. Unless the client’s business is seasonal, you usually need details of the income received by the business during the last three months. This should be based on actual payments received by the business (not on invoices issued by the business). The income figure should not include an amount due for work the business has completed unless payment for the work has been received.

If the client’s business is seasonal, a longer analysis of business income may be needed (up to a maximum of the last 12 months). You must explore how a client’s business usually fluctuates to decide what period the business financial statement should cover. Specialist advice may be needed.

Advisers should also check whether the self-employed client’s business has received any Covid-related government payments, such as bounce-back loans, to cover business income reductions caused by the pandemic. This type of payment will need to be listed, but you should be aware that any one-off payments could distort what the financial statement shows as available to the client. Specialist advice is usually needed in this situation.

Business expenditure

Look at the business’s expenditure figures (running costs) for the same period of time that has been chosen to assess the client’s business income.

Make sure that you include all relevant expenditure for the business – eg, banking facility and overdraft charges, lease or rental charges (for property and equipment), utility bills (including telephones and waste disposal), payments to suppliers, VAT payments, staff costs (including wages and employers’ costs) and accountancy fees. Only include expenditure for the business in the business financial statement. The client’s personal and household costs are covered by the personal financial statement.

Be careful not to double count expenses that are shared by the business and the client personally - eg, electricity costs for a sole trader client who trades from home or travel costs for a client who uses a single vehicle for business and personal transport. Double counting (when the full cost, or part of the cost, is added to both the business and personal financial statement) reduces the client’s available income and creates an inaccurate assessment of their financial position.

Shared expenses need to be divided between the client’s business and personal statements based on the client’s individual circumstances. A client needs to work out how much of the cost covers business use and add this proportion to the business financial statement. The remainder of the cost should be included in the personal financial statement. Sometimes, it can be difficult to separate shared costs. Useful advice is available to help work out how much of the client’s shared costs should be included in the business statement at gov.uk/expenses-if-youre-self-employed. Signpost the client to specialist advice if needed.