Self-Employment Income: How to Evidence It

Which figure, and which year

Two rules in Appendix FM-SE decide this before any document is gathered.

Paragraph 19(b) — the figure. For a sole trader, partner or franchisee, income is "the gross taxable profits from their share of the business in the relevant financial year(s), not including any deductable allowances, expenses or liabilities which may be applied to the gross taxable profits to establish the final tax liability".

That is not the same as net profit, and it is not the figure at the bottom of the tax calculation. It is the taxable profit before the allowances and reliefs that reduce the final bill.

Paragraph 7(b) and 19(d) — the year. The documents are for "the last full financial year, or for the last two such years (where those documents show the necessary level of gross profit as an average of those two years)". Paragraph 19(d) then defines that year as the period to which the required Statement of Account, SA300 or SA302, relates.

Paragraph 13(e) then adds everything else to that figure: income from salaried or non-salaried employment held by the person, and by their partner if the partner is in the UK with permission to work, specified non-employment income, and pension income — all measured over the same financial year or the same two-year average. Paragraph 13(e) also says that for these purposes the evidence requirements apply "as if references to the date of application were references to the end of the relevant financial year".

The bar on combining with savings

Paragraph 13(f), in full:

"Where the person is self-employed, they cannot combine their gross annual income at paragraph 13(e) with specified savings in order to meet the level of income required under Appendix FM."

So the cash savings route is an alternative to self-employed income, never a top-up to it. A self-employed sponsor whose gross taxable profit falls short of £29,000 cannot make up the gap with savings; they would have to meet the whole requirement from savings alone, or from another permitted source.

Sole trader, partner or franchise: paragraph 7

Paragraph 7 opens "all of the following must be provided". It is a closed list, and the items are not alternatives.

1. (a) Evidence of the amount of tax payable, paid and unpaid for the last full financial year.
2. (b) For that year, or the last two such years: the annual self-assessment tax return to HM Revenue and Customs, as a copy or print-out; and the Statement of Account, SA300 or SA302.
3. (c) Proof of registration with HMRC as self-employed, "if available". This is the one item the Rules qualify.
4. (d) Each partner's Unique Taxpayer Reference, or that of the partnership or business.
5. (e) Where a separate business bank account is or was held, bank statements for the same 12-month period as the tax return.
6. (f) Personal bank statements for the same 12-month period, showing the self-employment income paid into an account in the name of the person, or of the person and their partner jointly.
7. (g) Evidence of ongoing self-employment — see below.
8. (h) One of four further documents — see below.

You can obtain the tax return and the Statement of Account from your HMRC online account. A return that has not been filed cannot produce either, which is why the filing date, not the application date, is the real deadline.

(g) Evidence of ongoing self-employment

At least one of the following, and each carries a date limit of no more than three months before the date of application:

• a bank statement showing transactions relating to ongoing trading; or
• evidence of the renewal of a licence to trade, or of ongoing payment of business rates, business-related insurance premiums, employer National Insurance contributions, or franchise payments to the parent company.

Paragraph 19(a) states the principle behind it: "There must be evidence of ongoing self-employment... at the date of application." The tax return proves last year; this proves the business still exists.

(h) One of four

• Accounts. If the business is required to produce annual audited accounts, those accounts for the last full financial year. If it is not, unaudited accounts for that year and an accountant's certificate of confirmation, from an accountant who is a member of a UK Recognised Supervisory Body as defined in the Companies Act 2006, or a member of the Institute of Financial Accountants, the Association of Authorised Public Accountants, the Chartered Institute of Public Finance and Accountancy, the Chartered Institute of Management Accountants, the Association of International Accountants, or the Association of Accounting Technicians.
• VAT. A certificate of VAT registration and the VAT return for the last full financial year, confirming the registration number — the Rules say "if turnover is in excess of £79,000 or was in excess of the threshold which applied during the last full financial year". The £79,000 in the text is a historic figure the Rules have not updated; the operative words are the ones about the threshold that actually applied.
• Planning. Evidence of appropriate planning permission or local planning authority consent to operate that type of business at the trading address, where the local authority requires it.
• Franchise agreement signed by both parties. Paragraph 7(i) makes this one mandatory rather than optional if the organisation is a franchise.

Owner-managed limited companies: paragraph 9

Paragraph 9 applies instead of paragraph 2 where the income comes from employment or shares in a UK limited company of a specified type. The definition, at 9(a), has three limbs, all of which must be met:

• the person is a director or employee of the company, or both, or of another company in the same group;
• shares are held, directly or indirectly, by the person, their partner, or a listed relative — parent, grandparent, child, stepchild, grandchild, brother, sister, uncle, aunt, nephew, niece or first cousin; and
• any remaining shares are held, directly or indirectly, by fewer than five other people.

A company that does not meet all three is not a paragraph 9 company, and a salary from it is evidenced under paragraph 2 as ordinary salaried employment. Paragraph 2(d) requires a director of a UK limited company to provide evidence that the company is not of the paragraph 9(a) type — the latest Annual Return filed at Companies House can do that.

What paragraph 9 requires

Always, under 9(b): the Company Tax Return CT600 for the last full financial year and evidence it was filed with HMRC; evidence of registration with the Registrar of Companies at Companies House; audited accounts for that year if the company must produce them, or unaudited accounts plus an accountant's certificate of confirmation from the same list of bodies if not; corporate or business bank statements covering the same 12-month period as the CT600; and one of — a VAT certificate and return on the same terms as above, proof of ownership or lease of business premises, or proof of registration with HMRC as an employer for PAYE and National Insurance with the PAYE and Accounts Office reference numbers.

Where a salary is taken, under 9(c): payslips and the P60 if issued, covering the same period as the CT600; and personal bank statements covering the same 12-month period showing the salary paid into an account in the name of the person, or of the person and their partner jointly.

Where dividends are taken, under 9(d): dividend vouchers for every dividend declared in favour of the person during or in respect of the CT600 period, showing the company's and the person's details and the net dividend amount; and personal bank statements showing those dividends paid into an account in the same names.

Ongoing income, under 9(e): evidence of ongoing employment as a director or employee, or of ongoing dividend income, since the CT600 period. Payslips or dividend vouchers with bank statements will do; so will evidence of ongoing payment of business rates, business-related insurance premiums or employer National Insurance contributions.

Paragraph 19(e) fixes the financial year here as the period covered by the CT600, and paragraph 13(j) applies the self-employment calculation rules — including the bar on combining with savings — to this income too.

Three cases the Rules treat differently

• Equity partners. Paragraph 17: where a person is an equity partner, for example in a law firm, the income drawn from the partnership — including where it is a profit share — is treated as salaried employment. Paragraph 3 lets the payslips and employer's letter be replaced by other evidence giving the same information, which may include a letter on official stationery from an accountant, solicitor or business manager acting for the partnership.
• Construction Industry Scheme subcontractors. Paragraph 17A: a subcontractor under the CIS who does not rely on paragraph 13(e) may have that income treated as salaried employment, evidenced under paragraph 2 adjusted for their status.
• Self-employment outside the UK. Paragraph 8: evidence "should be a reasonable equivalent" to paragraph 7. Paragraph 8A covers a sponsoring partner returning to the UK to continue self-employment here, requiring one of a licence application, details of the purchase or rental of business premises, a signed employment or services contract, or a signed partnership or franchise agreement — with a starting date within three months of the return.

One concession worth knowing about

Paragraph 19(c) helps couples coming off the fiancé route. Where self-employed income was used to meet the financial requirement on an application for entry clearance as a fiancé, fiancée or proposed civil partner in the last 12 months, the Secretary of State may continue to accept the same level and evidence of income on the first application for permission to stay as a partner — provided there is evidence of ongoing self-employment at the date of that application.

It is a discretion, not an entitlement, and it depends on the 12-month window. Our entry on the two routes covers how they sit together.

Where these applications come apart

These follow from the paragraphs above. GOV.UK publishes no breakdown of refusal grounds on this route, so there are no percentages to give.

• The tax return for the last full financial year has not been filed, so no SA300 or SA302 exists to provide.
• Net profit is used where the Rules ask for gross taxable profit.
• The accountant's certificate is treated as optional where paragraph 7(h)(i)(bb) makes it mandatory, or comes from an accountant outside the listed bodies.
• Nothing under paragraph 7(g) is provided, so ongoing self-employment is not evidenced.
• Savings are added to self-employed income, which paragraph 13(f) forbids.
• Bank statements cover a different 12 months from the tax return or the CT600.

Related entries

• The financial requirement
• Category A: employment income
• Category B: newer employment
• The cash savings route
• Non-standard employment
• Financial documents

Questions and answers