Loss of Earnings Claims: Self-Employed Claimants
The details that you need to consider for self-employed claimants
Unlike the case for an employed individual where you likely to instruct us as your expert adviser, in the case of a self-employed individual you should be able to convince the court as to why there is ‘a reasonable requirement for expert evidence to be used to resolve proceedings' (CPR 35.1).
As your court appointed expert or as your expert adviser, HSC would consider the following details for an individual who has previously run his or her own business:
Supporting evidence that needs to be obtained as soon as possible:
- Copies of the claimant's self-employed accounts for the last six complete financial years prior to the accident
- Copies of all accounts prepared from the year of the accident to date
- A copy of the Income Tax computation (usually prepared by the claimant's own accountant) showing how the profits per the above accounts were adjusted to give the profit figures assessable to Income Tax. Adjustments include such items as depreciation and entertaining
- Copies of the claimant's disclosed Income Tax returns for the six tax years prior to the accident and for all tax years since
- Copies of all agreed Income Tax assessments and, since 1996/97, notices of tax paid/payable for all of the above tax years.
- If the claimant is registered for Value Added Tax (VAT) then copies of the VAT returns for the claimant's self-employed business covering the three accounting years prior to the accident and all accounting years since
- A brief description of the accounting records kept by the claimant's business, eg manual or computerised sales day book or just copies of all sales invoices
- A brief description by the claimant of his input into his business prior to and after the accident together with the claimant's own thoughts on where and why the business has suffered financial losses as a result of the accident
Factors that need to be considered for a self-employed individual:
- Did the claimant trade as a sole trader or were they in some form of partnership?
- If in partnership, is this a partnership based on an equal input into the business or is it purely for tax reasons? eg an equal partnership with a spouse whose input into the business is minimal. Need to consider the following two cases:
Kent v British Railways Board [1995] PIQR 242
Ward v Newalls Insulation Co Ltd [1998] PIQR Q41
The case of Ward allows the claimant not to be restricted to their partnership share as declared to the Inland Revenue if they can show that the real state of affairs in the business was different from the declared split.
- Was the result of the claimant's injuries a loss of income, increased expenditure or a combination of both?
- Were the claimant's pre-accident earnings/profits affected by any internal or external factors that would have continued or ceased in the future? eg: National, regional or industry recession (or boom); Changes in either selling prices or input costs that had or will affect margins; Loss of a key employee or customer; Financing constraints.
- Are there any regional or national statistics available for the type of business in which the claimant operated?
- Does the claimant know anyone in the same field that would be willing to act as a comparator?
- Does the claimant have, or can he obtain, details of income sources that he or she lost as a result of their injuries?
- Would lost income be simply recoverable by the claimant in the future? (ie just time delay rather than full loss)
- Would future projected levels of income force the claimant's business to become VAT registered and what would be the financial consequences of this on the business?
- Is there any legislation since the date of the accident that would have affected the claimant's business, its profitability or its taxation status?
- Can we obtain any evidence on the financial position of former competitors to the claimant's business?
- Has all pre-accident and post-accident income been disclosed in the claimant's accounts?
