Averaging: amendments to profits: reasons other than averaging: averaging claim in place
S222(3), S225 Income Tax (Trading and Other Income) Act 2005
Where, after an averaging claim has been made for any two tax years, the profits for both or either of the years are amended for any reason other than the making of an averaging claim, the existing claim is to be unscrambled and ignored. This may occur, for example:
- where a claim for recovery of overpaid tax is accepted,
- where HMRC discovers that additional trading profits are to be assessed.
However, a further claim for averaging may then be made in respect of the two years which have been unscrambled. The time limit for making such a further claim is 31 January next following the end of the tax year in which the adjustment giving rise to the unscrambling was made.
Where, as a consequence of this further claim, scope for averaging newly occurs for subsequent years, a further claim for those years may be admitted. Consequential averaging claims for years earlier than the years covered by the further claim are not available.
The above points are illustrated in the example below.
Farm profits and assessments are originally as follows:
|Year||Farm profits for the tax year||Original claims||Original claims||Original claims||Original claims||Self-assessments||Tax adj.|
|2009-10||70,000||52,500||No claim competent||52,500||+ 08-09 tax adj.|
|2010-11||40,000||No claim competent||No claim competent||40,000|
|2012-13||60,000||46,000||46,000||+ 11-12 tax adj.|
Following an enquiry, a further assessment on £10,000 is made for 2008-09. The averaging position then becomes as follows:
|Farm profits for the tax year||Further claims for averaging||Further claims for averaging||Further claims for averaging||Further claims for averaging||Self-assess-ments||Tax adj.|
|2009-10||70,000||57,500||48,750||57,500||+ 08-09 tax adj.|
|2010-11||40,000||48,750||40,375||48,750||- 09-10 tax adj.|
|2011-12||32,000||40,375||50,187||40,375||- 10-11 tax adj.|
|2012-13||60,000||50,188||50,188||+ 11-12 tax adj.|
See BIM84145 for an example showing in more detail how relief is actually given.