SolvedBIM84210 | Averaging: example of a two year claim
From HM Revenue & Customs · Business Income Manual
An artist has the following profits and would like to consider making an averaging claim.
| Tax Year | Profits |
|---|---|
| 2015 / 2016 | £32,000 |
| 2016 / 2017 | -£20,000 |
As long as the profits in 2016 / 2017 are either less than £24,000 or more than £42,667 then the volatility condition has been met and on the basis that all of the criteria in BIM84100 are met, then an averaging claim can be made.
The averaging computation will look like this.
| Tax Year | Profits | Profits for averaging | Averaged Profits |
|---|---|---|---|
| 2015 / 2016 | £32,000 | £32,000 | £16,000 |
| 2016 / 2017 | -£20,000 | £0 | £16,000 |
So the artist’s profits for all tax purpose are now £16,000 for each year.
The artist can then claim to use the £20,000 of trade losses in the normal manner.
In this case the artist claims under S64 ITA 2007 to use the £16,000 loss against the general income of 2015/2016 and the residue of the loss, £4,000, against the general income of 2016/2017
Relief for the reduction of tax and class 4 NIC in 2015/2016 due to averaging and the reduction of tax due to the loss claim will be given in 2016/2017 and any interest on any repayment due will be given with reference to 2016/2017.