Income Tax (Trading and Other Income) Act 2005 section 222A

Circumstances in which claim for five-year averaging may be made

Section 222A sets out the conditions under which a farmer or creative artist may make an averaging claim across five consecutive tax years, including the volatility test that must be satisfied and the time limits for making the claim.

• A five-year averaging claim may be made for five consecutive tax years in which the taxpayer carries on a qualifying trade, profession or vocation, provided the volatility condition is met
• The volatility condition is satisfied either when the average of relevant profits for the first four years is less than 75% of the fifth year's profits (or vice versa), or when one or more (but not all) of the five years show nil profits
• A claim cannot be made for the tax year in which the taxpayer starts or permanently ceases the trade, profession or vocation, and cannot be made if an earlier claim already covers a later tax year
• The claim must be submitted by the first anniversary of the normal self-assessment filing date for the last of the five tax years, with an extended deadline available where profits are subsequently adjusted