PM163195 - Averaging

S221-S225 Income Tax (Trading and Other Income) Act 2005

Averaging is a relief available to individuals who are farmers or market gardeners or who personally create literary or artistic works. It works by computing the total tax due for consecutive tax years as if the profit for each year is the average of the profits for those years.

S221 (1) (a) Income Tax (Trading and Other Income) Act 2005

Where the qualifying trade, profession or vocation is carried on in partnership, averaging claims may be made by each individual partner in respect of his or her share of partnership profits. It is not necessary for all of the partners to make a claim.

The partnership profits should therefore be allocated to the individual partners before averaging takes place.

A partnership change does not affect the availability of relief to any individual who was carrying on the trade both before and after the change.

More information on averaging can be found at BIM84000 to BIM84250.