Loss of Earnings and the Self-Employed Claimant

It seems that we are a nation of entrepreneurs with a record number of self-employed people now working in the UK.

When you don't have a consistent income, with payslips to prove it, how do the self-employed prove their loss of income after an accident?

The accident victim must prove any losses they claim and the court will expect to see evidence to support the level of income alleged to have been lost. Throwing yourself on the mercy of the court on the basis that you are an innocent victim will not be enough.

But proving loss of profits or potential profits is easier said than done.

As with every claim, evidence is key. Your accountant will be your new best friend.

Only net income can be claimed (not a reduction in gross turn over) and as such Tax Returns are the starting point for most claims of this nature. Compensators may also wish to see documents such as your profit and loss accounts, your invoices and receipts, details of contracts won or lost, details of pitches for work and communications with potential customers and your work/bookings diary. An interim set of accounts may have to be prepared to cover the period of loss rather than wait for the full set prepared only at the end of your business year.

If you have employed someone to cover your work, then that cost is relatively simple to calculate. A Claimant will have to show that the profitability of the business did in fact decrease, (or failed to increase) and that this was due to impaired efficiency due to your absence and not simply market forces.

Even where it is accepted that there was a high probability that time out to recover from injuries would have had a damaging effect on your business, if you have 'vague' accounts and it is impossible to calculate the loss then no award will be made (Ashcroft v Curtin [1971]). Sobering news for the many hard pressed small business owners who may struggle with paperwork. Businesses that have traded for many years with the paperwork to back it up will be best placed to show expected trends in turnover and profit and more easily link a "dip" in revenue with the time off after an accident. Fledgling businesses may have an uphill battle to prove their turnover figures would have been maintained (or even increased), but for the accident.

If the Claimant is part of a partnership then the loss is limited to the Claimant's share of the partnership profits. That can be harsh for fellow partners who suffer too if the business suffers.

If your business is a Limited Company the courts support the concept that the losses of the company can be claimed by the proprietor. This only applies however in small companies where the owner is effectively a one-man-band.

What happens in the grey area where your tax returns do not entirely reflect your true income? In these circumstances the court may be less sympathetic and any loss allowed will be subject to a deduction for national tax and VAT. The courts will allow these awards where the source of the income is legal (even though the failure to declare them was not). Defendant's however may notify the local tax office and repercussions may follow…

The normal rules of mitigation (minimising your loss) apply in these cases. If you can employ someone to cover your absence or you can at least partially run your business from home then the court would expect the injured entrepreneur to do so.

But what if your time away from the business has affected your chances to create new business, or attend meetings? It is this element of future loss that always provides the greatest challenge.

If you have lost the chance of participating in a business venture, the loss of this opportunity can be compensated. Any award under this head will undoubtedly be speculative, cannot be too remote and must still be proven.

Issues relating to "loss of chance" can play a major part in claims for future loss of earnings of a self-employed person, particularly an entrepreneur, budding sportsperson or anyone involved in show business.

Each case will turn on its facts, and the evidence that can be presented in support. In Appleton v Medhat Mohammed El Safty [2007] the court considered the loss of chance for a professional footballer on the basis that he had a 75% chance of playing at championship level and a 25% chance of playing in division one. Similar approaches have been adopted in relation to lost business opportunities and a promising professional career cut short.

Your solicitor will be able to advise you on the likely award you will receive and the extent of the evidence that will be needed to support such a claim.