SolvedBIM84250 | Averaging: example of a two year claim with loss cap restriction
From HM Revenue & Customs · Business Income Manual
A market gardener has the following profits and would like to consider an averaging claim in 2016/2017.
| Tax Year | Profits |
|---|---|
| 2015/2016 | £92,468 |
| 2016/2017 | -£265,480 |
As the volatility and other criteria are met an averaging claim can be made.
The averaging computation looks like this.
| Tax Year | Profits | Profits for averaging | Averaged Profits |
|---|---|---|---|
| 2015/2016 | £92,468 | £92,468 | £46,234 |
| 2016/2017 | -£265,480 | £0 | £46,234 |
So, the market gardener's profit for all tax purposes are now £46,234 for each year.
The £265,480 of trade losses can be used in the normal manner.
The market gardener's general income for 2016/2017 is £300,000, consisting of employment income of £253,766 and averaged trade profit of £46,234.
The amount of trade loss relief that can claimed for 2016/2017 is £121,234.
The figure of £121,234 is made up of £75,000 being the capped amount of relief (S24A(5) Income Tax Act 2007) and £46,234 that is not subject to the cap.
For further information on the relief cap see HS204 Limit on Income Tax Reliefs on GOV.UK.