Taxes Management Act 1970 Schedule 1B paragraph 3

Relief for fluctuating profits of farming etc.

Section 3 of Schedule 1B sets out how claims for profit averaging work for farmers and creative artists, covering both two-year and five-year averaging claims, and how the resulting tax adjustments are calculated and applied.

• Individuals carrying on a qualifying trade (farming or creative work) may claim to average their profits over either two or five consecutive tax years
• The claim is made in respect of the last of the two or five years, and the relief for each earlier year is calculated as the difference between the actual tax charged and the tax that would have been charged had averaging applied
• Where associated claims exist, both the actual and hypothetical tax figures must be recalculated as if those associated claims had already taken effect in the earlier year
• If averaging applies twice to the same tax year, any tax adjustment arising from the first application is ignored when calculating the amounts for the second application