This is a growing collection of topics aimed at developing a broader understanding of personal injury claims to assist professionals in the medico-legal industry. While these are generally accepted principles, there may be differing opinions.

Self-employed claimants without a Forensic Accounting report

If attorneys do not want to appoint an accountant, actuaries must use the IP report provided.

The best approach is to request multiple comprehensive income statements from before the accident and all since. If the claimant was the sole director (i.e., owns 100% of the business) the member’s salary indicated in the statement is their salary. In addition, the net profit is also considered earnings, whether they withdraw it, or keep as retained profit in the business. Use the multiple statements from before the accident to calculate the inflation-adjusted average.

If the claimant did not keep income statements, we can use their personal tax returns. However, since this indicates withdrawals only, it excludes retained profit if there was any, and overstates earnings if the claimant was drawing more money than the business was making.

Common complications that occur:

  • IPs use turnover as income and make postulations based on this. This grossly overstates earnings. Use the earnings based on members salary + profit. If the IP suggested growth in turnover, it may be best to request an amended opinion. Sometimes the statements show that the business made a loss before the accident, in which case the IP needs to suggest how much profit the claimant may have made had the accident not occurred.
  • IPs and accountants sometimes indicate how much the claimant withdraws to indicate earnings. This is inaccurate as business owners can draw more or less than the profit being made.
  • IPs use reported earnings. Always use the earnings provided in the income statement. If there is no collateral, include a key assumption.
  • IPs suggest earnings growth to Paterson figures. Since self-employed individuals do not experience the same salary growth pattern as employed people, this may be incorrect. However, we will use the suggested growth as provided.
  • IPs suggest growth based on a short past period, with no end point. If the claimant is young, real growth until retirement may have a significant and unreasonable result. Based on the impact of the % growth, make a judgment call whether to discuss it with the client or make a key assumption.
  • Clients provide / IPs use bank statements. Bank statements indicate cash deposits from any source, transfers between accounts and withdrawals. It is a poor source as it does not indicate the true turnover or expenses and should not be used to calculate earnings.
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