Averaging calculator

The Averaging Calculator is available from the self-employment page within the Data Input tab of the tax return. Select Averaging calc… under the Adjustments heading.

The calculator will help you to work out the averaging required for farmers and market gardeners, and creators of literary or artistic works. See HMRC helpsheet 224 Farmers and market gardeners and HMRC helpsheet 224 Averaging for creators of literary or artistic works.

Validation of business start and end dates

The averaging calculator will show an error message if the business has started within the last two years or has ceased in the current year. Averaging is not applicable in these circumstances, and the calculator cannot be used.

Prior year profits

If the current year’s tax return data has been rolled forward from the previous year then the previous year’s profits will already be shown in the averaging calculator. If this is the first year for which data has been entered, or if the previous year’s profit shown is incorrect, enter the previous year’s adjusted profit into the first field of the averaging calculator.

If the previous year was already subject to an averaging claim then the figure to use is the averaged profit from the previous year.

Calculation

Once the prior year profit has been entered, the averaging calculator will use the averaging rules to determine the method of averaging that can be used. If the lower of the two profits is 75% or more of the higher profit then averaging is not applicable for the current year and the calculator will show that no adjustment can be made.

If the lower of the profits is less than 75% of the higher profit, then averaging is available and the calculator will show the averaging method used and the subsequent adjustments to the current year and prior year profits.

Updating the tax return

To accept the adjustment for the current year profit, select Accept. This will close the calculator and update the fields on the self-employment adjustments section.

The calculator will only update the self-employment profits for the current year. To make the adjustment for the previous year, work out how much the tax and Class 4 NICs for the previous year would have changed if you had amended that tax return to the averaged profits, then use the underpayments, overpayments and adjustments section to enter the increase or decrease in tax due for the earlier year.