Part 2U.K.Trading income
Chapter 16U.K.Averaging profits of farmers and creative artists
223Adjustment of profitsU.K.
(1)If a taxpayer makes an averaging claim, the amount taken to be the taxpayer's profits of each of the tax years for which the claim is made is adjusted in accordance with this section.
(2)But this is subject to paragraph 3 of Schedule 1B to TMA 1970 (claim given effect in the second of the two tax years).
(3)If—
(a)the relevant profits of one of the tax years are 70% or less of the relevant profits of the other tax year, or
(b)the relevant profits of one (but not both) of the tax years are nil,
the amount of the adjusted profits of each of the tax years is the average of the relevant profits of the two tax years.
(4)If the relevant profits of one of the tax years—
(a)are more than 70%, but
(b)are less than 75%,
of the relevant profits of the other tax year, the amount of the adjusted profits of each of the tax years is calculated as follows, so as to reduce the variation between them.
Step 1
Calculate the amount of the adjustment by applying the formula—
where—
D is the difference between the relevant profits of the two tax years, and
P is the relevant profits of the tax year of which those profits are higher.
Step 2
Add the amount of the adjustment to the relevant profits of the tax year of which those profits are lower.
The result is the amount of the adjusted profits of that tax year.
Step 3
Subtract the amount of the adjustment from the relevant profits of the tax year of which those profits are higher.
The result is the amount of the adjusted profits of that tax year.