Guidance

HS234 Averaging for creators of literary or artistic works (2024)

Updated 6 April 2023

Summary of relief

A special relief is available for creators of literary or artistic works under which they can claim to add together their profits for 2 years and be taxable on the average of those profits if certain conditions are met. This helps to even out fluctuating results.

Averaging does not affect the amount of tax and National Insurance contributions you pay in earlier years. The adjustments for all years that relate to an averaging claim are taken into account in your 2023 to 2024 tax and National Insurance contributions. You should pay tax and National Insurance contributions for earlier years in full, even if averaging reduces your profit for those years, otherwise you may have to pay interest on unpaid tax and National Insurance contributions.

Who can claim averaging

You can claim averaging if your profits come from disposing of works or from royalties you get for allowing people to reproduce your works. So, for example, you can claim if you’re:

• an author whose income comes from the sale of your written work — even if a small part of your income comes from personal appearances
• a computer software writer whose income comes from royalties for reproducing the code you write, which is protected by copyright

Who cannot claim averaging

You cannot claim averaging if your profits come from the services you provide. So, for example, you cannot claim if you’re:

• an architect whose income comes mainly from your services — even if some of your income comes from selling material protected by copyright
• a computer programmer whose income comes from the service of writing scripts or programs, not the actual works

Conditions

Claims can be made by:

• sole traders
• partners, except people who joined or left the partnership in 2022 to 2023 or 2023 to 2024

You cannot claim if your business started or ended in 2022 to 2023 or 2023 to 2024.

The difference in profits of one of the tax years must be less than 75% of the profits of the other tax year, or the profits of one tax year are nil.

Profit

These notes cannot give detailed guidance on every situation. If you read these notes but cannot then work out your profits for 2022 to 2023 or 2023 to 2024, ask HMRC or your tax adviser for more help.

Profit sole traders

Profit means profits after capital allowances and balancing charges, see Helpsheet 222: How to calculate your taxable profits and Helpsheet 252 Capital allowances and balancing charges for more information. Your profit is the figure in box 64 or 65 on the Self-employment (full) pages, adjusted by any amounts in boxes 68 and 69. Losses count as zero.

Where an averaging claim has been made, the total income of the tax years to which the claim relates is taken as the total income before any adjustment is made.
For example, if 2022 to 2023 had already been averaged with 2020 to 2021, the averaged profit will be shown in box 73 of the 2022 to 2023 Self-employment (full) pages.

Profit: partners

Your profit for 2021 to 2022 and 2022 to 2023 is the figure in box 8 of your ‘Partnership’ pages, adjusted by the figures (if any) in boxes 9 and 13.

How to claim: sole traders

Claim in box 72 in the Self-employment (full) pages.

How to claim: partners

Claim in box 11 in your ‘Partnership’ pages. If you wish to claim averaging, you are entitled to do so even if your partners decide not to claim.

Examples of averaging

Example 1

John’s results are:

2023 to 2024 profit: £10,000 2022 to 2023 profit: £40,000

If averaging is claimed, the profit for each year becomes:

(£10,000 + £40,000) ÷ 2 = £25,000

This applies even if the £40,000 for 2022 to 2023 was the result of an averaging claim for 2022 to 2023 and 2021 to 2022. John’s 2023 to 2024 profit is increased by £15,000 and this increase must be entered in box 72 of the Self-employment (full) pages or box 11 of the ‘Partnership’ pages.

Example 2

2023 to 2024 loss: £20,000 2022 to 2023 profit: £32,000

The loss counts as zero when averaging is computed so the average result for each year is:

(0 + £32,000) ÷ 2 = £16,000

Ian’s 2023 to 2024 profit is increased from £0 to £16,000 and this increase of £16,000 must be entered in box 72 on page SEF 4 of the Self-employment (full) pages (or box 11 of the ‘Partnership’ pages if Ian is a partner).

The loss of £20,000 should be entered in box 77 (box 21 for partners). Unless there are any adjustments in boxes 68 and 69 (boxes 9 and 14 for partners), this figure will be the same as the figure in box 65 (box 8 for partners).

Change in the profits for 2022 to 2023

Depending on whether your 2022 to 2023 profit goes down or up as a result of averaging, relief is given or the extra tax is charged by way of an adjustment to your tax liability for 2023 to 2024. If, as a result to the change in profits, you wish to change other claims to relief for 2022 to 2023, you can do so when making the averaging claim.

To calculate the 2023 to 2024 adjustment you must:

• work out the increase or decrease in your tax and Class 4 National Insurance contributions for 2022 to 2023 which would’ve happened if you had amended your 2022 to 2023 tax return because of the changed profit including any consequential changes (for example, because changing the profit changes the limits for Retirement Annuity Relief)
• enter the adjustment in box 14 (increases) or box 15 (decreases) on your Tax calculation summary pages for 2023 to 2024

If your profits change

Any averaging claim you’ve made in your tax return will be ignored if your profits for either 2023 to 2024 or 2022 to 2023 changes. Provided the time limit for amending your tax return has not expired, you can make a claim to average the changed profits by amending your tax return, whether or not you originally made a claim.

Even if the time limit for amending your tax return has expired, you can still make a claim if you used averaging to compute your taxable profit before the profits changed. You cannot amend the tax return yourself but you should write to HMRC to ask for any necessary adjustments to be made. Do not delay writing because there’s a time limit.