An injury can reduce a self-employed person’s income immediately. You may need to cancel work, reduce hours or pay someone else to cover jobs. Employees can usually show lost earnings through payslips. Self-employed people have to face a more complicated process.
Lawyers in Liverpool may need to review different business records to estimate what the claimant would have earned if the accident had not happened.
The first question is how the business is structured
The claimant may work:
- As a sole trader
- Through a partnership
- Through their own limited company
A sole trader’s business profit is usually the same as their personal income. A partnership or limited company is different. A drop in company turnover does not automatically mean the director or shareholder has lost personal income.
A limited company is a separate legal entity. The claim usually focuses on what the claimant personally lost, like:
- Salary
- Dividends
- Their share of business profits
- Changes in the value of their interest in the business
- Money kept in the company
- Extra costs caused by their absence
The correct calculation depends on the business structure. It must reflect the claimant’s actual personal loss.
Lost turnover is not always lost earnings
A drop in revenue can look like a loss, but it is not always the real loss. The business could have saved money because it did not perform the work.
A claim usually needs to separate:
- Lost turnover
- Saved business costs
- Lost profit
- Extra costs caused by the injury
- The claimant’s own loss of income
A self-employed tradesperson who cancels a £2,000 job, for example, has not necessarily lost £2,000. They may have saved money on materials or equipment. They may also have had to pay someone else to complete the work.
The final figure is therefore rarely just the value of the cancelled job. It should reflect the actual financial impact of the injury.
Documents that support the claim
The clearest picture usually comes from combining different records. Useful evidence can include:
- Self Assessment tax returns
- Business and personal bank statements
- Annual accounts
- Profit-and-loss reports
- Management accounts
- Sales invoices
- Purchase invoices and receipts
- Payment records
- Appointment diaries
- Confirmed bookings
- Signed contracts
- Contracts that were cancelled or delayed
- Accepted quotations
- Customer emails about postponed or cancelled work
- Evidence of regular repeat customers
- Replacement staff or subcontractor costs
- Payroll records
- Details of business expenses
- Records showing seasonal changes in income
- Evidence of work completed before and after the injury
Self-employed people must usually keep records of income and expenses. This includes invoices, receipts and bank records. These documents show individual payments and also help show how the business was performing before the injury.
An accountant may review past profits and changes in income. They may also assess the impact of the claimant’s absence on the business.
Larger or disputed claims require independent accounting evidence. An independent accountant can review the records, explain past performance and give an opinion on the losses the injury caused.
How lawyers avoid double-counting
A claimant cannot claim the same loss twice. A claimant should not claim all of the following at the same time:
- The full value of cancelled work
- The full drop in profit
- The full cost of hiring replacement workers
Lawyers and accountants need to check these figures against each other. The business may not have lost the full contract value if a replacement worker completed the job. The loss may instead be the cost of the replacement and any reduced profit.
The calculation must also account for any savings. The claimant, for example, may not have had to buy materials when a job did not go ahead. Lawyers should deduct those savings from the loss.
Lawyers and accountants review the figures together to make sure the same loss is not counted more than once.
Medical evidence is key
Business records show what happened to income, but they do not explain why it happened. Medical evidence helps establish why the income changed.
Medical evidence can show:
- How long the claimant could not work
- Whether they were fully or partly unable to work
- What physical or mental tasks they could not do
- Whether they could only work reduced hours
- Whether they needed extra breaks
- Whether they could travel to work or appointments
- Whether the restrictions are ongoing
- Whether they may need to change job
Lawyers and accountants review medical evidence and business records together. This comparison helps show whether the injury, rather than other business factors, caused the drop in income.
What if the business is new or income changes?
Some claims are harder to measure. A new business may not have years of accounts. A seasonal business may earn very different amounts from one month to the next. Comparing income with the previous month alone can be misleading in these cases.
Lawyers in Liverpool may look at:
- Confirmed future bookings
- Existing contracts
- Accepted quotations
- The claimant’s business plan
- Money already invested in the business
- Advertising and marketing activity
- Industry trends
- The claimant’s previous employment history
- Comparable trading periods
- Evidence of repeat or increasing customers
Growth before the accident can also be relevant. A new business may not have a long profit history. But confirmed contracts and rising bookings can still show expected growth.
The court does not guess. The evidence must show a reasonable view of what the business would likely have earned if the accident had not happened.
Can claimants recover future loss of earnings?
Yes, in some cases. Claimants may seek compensation for future loss of earnings if the injury affects their ability to work after recovery. This can also include a reduced ability to earn in the future. This depends on the evidence, including medical reports and financial information.
Lawyers and accountants may consider the following factors when calculating future loss:
- Age of the claimant
- Current health and likely recovery
- Type of work they do
- Skills, qualifications and experience
- Business performance and prospects
- Ability to hire others to help
- Whether duties can be changed or reduced
- Need for retraining
- How long the restrictions are expected to last
The amount must reflect realistic expectations. It will not assume the claimant would have earned the same amount indefinitely.
Speak to Stallard Solicitors today
Stallard Solicitors can review how your injury has affected your work and income. We can also identify the evidence you need to clearly support your financial loss. This may include medical evidence or records from your accountant. Larger or disputed claims may also require independent accounting evidence. Contact Stallard Solicitors for a free initial consultation.
