The Averaging Calculator helps you to calculate the averaging required for farmers, market gardeners, and creators of literary or artistic works. Refer to HMRC's guidance in Check reliefs and rules for farmers and market gardeners (opens in a new tab) or Averaging for creators of literary or artistic works.
-
Go to Clients > Client List, then find and select the required client.
-
From the Personal tax returns widget on the client dashboard, select the required return.
-
On the Data input tab, if you haven't already, add the self employment section.
-
Scroll down to the Adjustments section. Next to the Averaging adjustment box, select the calculator.
The calculator will display an error message if the business has started within the last two years or has ceased in the current year, as averaging is not applicable in these circumstances.
-
Complete the calculator as follows:
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 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.