BIM84240 - Averaging: example of amendment to profit without averaging
An artist聽makes a self-assessment of the following profits.
| Tax Year | Profits |
|---|---|
| 2015/2016 | 拢14,000 |
| 2016/2017 | 拢38,000 |
Although the volatility condition and other criteria are met the artist decides not to make an averaging claim as they are liable to income tax at the basic rate in both years.
Following聽HMRC's enquiry into the 2016/2017 tax year the profits for that year are increased to 拢60,000.
As the artist is now liable聽to income tax at the higher rate in 2016/2017 they decide to make an averaging claim.
The averaging claim cannot now聽reduce the 2016/2017 profit to lower聽than the original self-assessment.
The computation will look something like this.
| Tax Year | Self-assess | Profit uplift | Profits to average | Averaged Profits | Adjusted averaged profits |
|---|---|---|---|---|---|
| 2015/2016 | 拢14,000 | 拢0 | 拢14,000 | 拢37,000 | 拢36,000 |
| 2016/2017 | 拢38,000 | 拢22,000 | 拢60,000 | 拢37,000 | 拢38,000 |
Strictly, the 2015/2016 adjustment should be computed on a profit uplift of 拢23,000, although by concession it is adjusted to match the adjustment for 2016/2017 (See SACM9030).