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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Averaging: profits for the purpose of averaging

S221 Income Tax (Trading and Other Income) Act 2005

’Profits’ for the purpose of averaging are the profits of the qualifying trade, profession or vocation which are chargeable to Income Tax as trading income for the tax year. The profits to be taken are:

  • after the deduction or addition of capital allowances and balancing charges;
  • after any adjustment under the legislation for compensation for the compulsory slaughter of animals (see BIM55180);
  • before any deduction for losses.

Losses count as Nil.

When profits for a pair of years have been averaged, the new (averaged) profit for the second year is used in any claim to averaging with the following year (see BIM84140).