Low revenue, losing clients for months, or maintaining an activity that barely generates income can ultimately make a business unviable, even if the accounts still show a profit. In certain cases, this situation may open the door to unemployment benefits for the self-employed.
Some self-employed individuals keep their businesses open for months, or even years, even when income has fallen to levels that barely allow them to sustain operations. In these cases, a significant question often arises: If the business is still generating some profit, however minimal, does this rule out the possibility of applying for unemployment benefits? Not necessarily.
Several court rulings have held that the absence of accounting losses does not, in itself, preclude the recognition that an activity has become unviable. The key is to be able to demonstrate what is actually happening within the business and why continuing to operate it is no longer reasonable from an economic or production standpoint.
What does the regulation require?
To access the benefit for cessation of activity, the self-employed worker must be in one of the legally protected situations. These include economic, technical, production-related, or organizational reasons that make it impossible to continue the activity.
The law expressly contemplates certain scenarios, including losses exceeding 10% of revenue for a full year. But this raises a question that has frequently reached the courts: Is this percentage of losses the only way to demonstrate that a business is unviable? Several rulings have answered no.
The courts have analyzed cases in which the self-employed worker still had a small profit, but their earnings had fallen to practically negligible levels. In some of these rulings, the benefit was granted because, after assessing all the circumstances, it was proven that the business could no longer be maintained in a viable way.
- Please note: This does not mean that any self-employed person with low income is entitled to cessation of activity benefits. Earning little is one thing, but demonstrating that the business has objectively ceased to be viable is another.
Proof
In an application of this nature, it will not be enough to simply state that the business is no longer profitable. It will be necessary to demonstrate how the business has evolved and what circumstances have led to its decline. Particularly useful evidence includes revenue trends over several fiscal years, tax returns, accounting records, a sustained drop in sales, the loss of clients or major contracts, the existence of debt, or any other data that demonstrates that maintaining the business is no longer sustainable.
That is why it is especially important to gather the documentation before processing the termination and not limit the analysis to the result of a single fiscal year.
What do we recommend doing?
If a business is experiencing a prolonged drop in revenue and closure is being considered, it's advisable to analyze the situation before making any decisions. In particular, it's recommended to review the financial performance over several years, tax and accounting records, any outstanding debts, lost customers, and any other circumstances that might explain why the business has become unviable.
- Attention. Before deregistering or permanently closing the business, it is advisable to check if the requirements for cessation of activity are met and to adequately prepare for any test that the Mutual Insurance Company may require.
The viability of a business cannot always be reduced to simply checking whether the accounting result is positive or negative. A self-employed individual may formally maintain a small profit and yet find themselves facing an activity that no longer generates sufficient income to continue. In these cases, the possibility of accessing benefits will depend on the specific circumstances and, above all, on the ability to objectively demonstrate the lack of viability.
From our office, we can review each situation before processing the cessation, check if the required causes exist, and assess what documentation is appropriate to provide to properly prove the economic situation of the activity.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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