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HMRC internal manual

Business Income Manual

Averaging: when profits can be averaged

S223, S224A Income Tax (Trading and Other Income) Act 2005

Two-Year averaging 

A claim be made if the profits of one year are less than 75% of the profits of the other year, or, the profits of one (but not both) of the tax years are nil.  

Five-Year averaging

A claim can be made if the volatility condition is met.

The volatility condition is that one of the following is less than 75% of the other:

  • the average of the profits for the first four tax years
  • the profits of the last of the tax years 


  • the profits of one or more (but not all) of the tax years are nil.  
Trading losses

A trading loss is treated as a nil profit for averaging purposes. This enables the loss relief to be claimed under the normal rules without the measure of the loss available for relief being affected by averaging.


Examples of these computations and other aspects of averaging are included from BIM84210 onwards.