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HMRC internal manual

Business Income Manual

Averaging: example of amendments to profits following averaging

Using the example in BIM84220 the farmer realises after submitting their 2016/2017 tax return and making the averaging claim, that they have inadvertently left £2,000 of profits off that return.

The farmer is within the time limit to amend their 2016/2017 tax return and duly does so.

The amendment cancels the averaging claim and the farmer will, if they still want to, be able to make a fresh averaging claim.

The farmer computes that all of the tests are still met and makes a fresh claim. The computation now looks something like this.

Tax Year Profits Averaged Profits
     
2012/2013 £12,000 £19,200
2013/2014 £12,000 £19,200
2014/2015 £10,000 £19,200
2015/2016 £10,000 £19,200
2016/2017 £52,000 £19,200

 The farmer will then need to compute the increase in tax and class 4 NIC on an increase in profits of £400 for each of the five years (£19,200 less £18,800) and pay that as part of their amended 2016/2017 self-assessment.