BIM73135 - Farmers' averaging: marginal relief

Marginal relief may be claimed where the difference between the two profit figures is between 25% and 30% of the higher of the two. This avoids a disproportionate change in the tax bill near the point where full averaging ceases to apply. If the difference is 25% or less of the higher figure no relief is available.

Relief is computed by adjusting both profit figures by a similar amount. The amount is three times the difference less 3/4 of the higher figure. This can be expressed in the formula A = ( 3 x D ) - ( 3/4 x H ) where A is the amount of the adjustment, D is the difference and H is the higher profit figure.

In years not within the SA regime the figure of A is then deducted from the higher profit figure and added to the lower figure. The resulting figures become the chargeable profits for the two years of assessment. In these cases the tax due changes for both years.

Example – marginal relief

Farm profits are as follows:

The farm profits chargeable under Case I of Schedule D are therefore as follows:

The difference between the two figures is £11,000 (£40,000 - £29,000).

This is equal to £11,000/£40,000 x 100 = 27.5% of the higher figure.

Full averaging is not available as the difference is less than 30% of the higher figure. It does, however, fall between 25% and 30% so a marginal adjustment, if claimed, is made as follows:

(3 x £11,000) - ( 3/4 x £40,000) = £3,000.

Profits after marginal adjustment are:

2001-02 (£40,000 - £3,000) = £37,000.

2002-03 (£29,000 + £3,000) = £32,000.

Assessments become:

See BIM73145 for a more detailed explanation of the relief due from a farmers’ averaging claim within the SA regime.

If the years of assessment were pre-SA (for example 1994-95 and 1995-96) both years chargeable profits would have been changed to:

1994-95 (£40,000-£3,000) = £37000.

1996-96 (£29,000-£3,000) = £32,000.