BIM73120 - Farmers' averaging: profits for the purpose of averaging

’Profits' for the purpose of averaging are the profits of the trade of farming or market gardening which are chargeable to income tax under Case I of Schedule D for the year of assessment.

As the introduction of SA changed the method of dealing with capital allowances in the computation of Case I profits, it also changed the measure of profits to be used in an averaging claim. So:

• For trades which commenced before 6 April 1994, where the claim is for 1995-96 and 1996-97 or an earlier pair of years, ’profits' for the purpose of averaging are the Case I profits before the deduction or addition of capital allowances and balancing charges.
• For trades which commenced on or after 6 April 1994 regardless of the years covered by the claim, and for other trades where the claim is for 1996-97 and 1997-98 or a later pair of years, ’profits' for the purpose of averaging are the net Case I profits after the deduction or addition of capital allowances and balancing charges.

In either case, the profits to be taken are the profits before any deduction for losses.