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Farmers Averaging

Farmers Averaging

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The 2014-15 tax return allows you to claim within that return a freestanding credit for relief for losses brought back from 2015-16, despite that the loss claim is for 2015-16.
That facility does not appear to be possible for anticipating the consequences of an averaging election between 2014-15 and 2015-16, despite that it could have a significant impact on the amount payable on 31 Jan.
I have difficulty getting my head around why one should be possible but not the other. Maybe I should not try to get my head around it but just accept it. Has anyone else had success with putting in an early averaging claim as above, and if so how did you do it and were you successful?

Thanks

With kind regards

Clint Westwood

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Portia profile image
By Portia Nina Levin
25th Jan 2016 11:28

What box? I cannot find it! Both the carry back of losses and averaging claims are, as you know, subject to TMA 1970, Schedule 1B.

Thanks (1)
By The Minion
25th Jan 2016 12:34

we have had "early" averaging elections allowed, but

usually in exceptional circumstances such as profits affected by F&M, Flooding etc etc

 

You can only do them though if the year end fits such as 30th April etc when you know the actual taxable profits/losses etc. In the past hey have only usually effected the payments on account though.

 

Of course for averaging purposes and loss is treated as nil and can then be claimed against the subsequently averaged profits.

 

Don't every remember seeing a box like the one you describe but it would have saved a shed load of boring correspondence with HMRC in the past effectively having to be begged not to pursue the tax that the client could no longer afford to pay, through no fault of their own...

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By nogammonsinanundoubledgame
25th Jan 2016 13:21

Thanks

@Portia, the box is number 16 on page TC2 of form SA110 (Tax calculation summary).  This must be accompanied by a statement of the loss in box 3 at the foot of page Ai3 on form SA101 (Additional information).  As I say, you can do this for losses, but not (apparently) for averaging.

@Minion, thanks for that. Yes we have completed accounts for a historic balance sheet and basis period falling in 2015-16, but no exceptional circumstances other than a fairly large difference in the January tax payment.

With kind regards

Clint Westwood

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By Marion Hayes
25th Jan 2016 13:30

What impact are you expecting?

Averaging of profits does not reduce the tax liability of the earlier years tax return - it uses the computation for that year to assess the reduction which would have been due and applies it as a reduction to the later year - hence all you need to do is a reduction to payments on account for 2015/16 

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RLI
By lionofludesch
25th Jan 2016 13:38

Agree with Marion.

Why make your job harder than it need be ?

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Portia profile image
By Portia Nina Levin
25th Jan 2016 13:56

Aha!

Then the answer is simple is it not.

The loss relief claim is just a reduction in the 2015/16 liability, calculated by reference to the 2014/15 income.

Whereas the averaging claim is both an increase and a reduction in the 2015/16 liability, only one of which will be calculated by reference to the 2014/15 income.

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By nogammonsinanundoubledgame
27th Jan 2016 07:07

Thanks again

@Marion Hayes: Impact assessment

It probably comes as no surprise that an averaging election may result in a net reduction in tax liability. It would be rather a waste of political and civil service resources to introduce such legislation if its only effect were likely to be cash flow.

Even so, the cash flow effect can be significant, and it is not a huge mental leap to appreciate that where the election reduces the 2014-15 liability and increases (by a smaller amount) the 2015-16 liability, the overall effect on the January 2016 payment can be significant.

On this occasion the taxpayer was at higher rate in 2014-15 (most of it payable in January 2016) and without an averaging election would have no income at all (and loss of PA) in 2015-16. So making the election is a no-brainer, and it is just down to how much of the effect of that can be anticipated when making a payment in January 2016.

With kind regards

Clint Westwood

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By Marion Hayes
27th Jan 2016 07:51

@Clive

What year d are you looking at?

There is nothing to be done about the full 2014/15 balancing payment, even though it results in less smoothing out of the liability than the old assessment system used to achieve.

However, in view of the dramatic fall I would be tempted to look at the reasons for it - crop failure, asset investment, and forecast forwards. Contrarily it is sometimes worth averaging backwards first - even if profit then rises in 2014/15 year, so that some of the 2013/14 profit ends up going onwards to 2015/16. There is nothing to say you are not allowed to increase a liability.

Payments on account can then be reduced - any eventual increase would result in an interest charge but cash flow is all at times for farmers.

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By nogammonsinanundoubledgame
27th Jan 2016 08:33

Yes, thanks

I was looking to average 2014-15 with 2015-16.  Results for the latter are available and final.  Averaging 2014-15 with 2013-14 is not possible but were it possible I don't think that it would negate our desire to average 2014-15 with 2015-16, and to anticipate the beneficial consequences of that election as early as possible.  Whether that is given effect by a reduction in the 2014-15 balancing payment or by a free-standing credit used to settle that payment is not of great importance to us if the effect is the same.

Thanks

With kind regards

Clint Westwood

 

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By Marion Hayes
27th Jan 2016 09:02

?Free standing credit?


I don't think that is the effect the election has - stand alone loss claims do but averaging has to be done on a return I think.

Reduction on payments on account is the only impact so if a reduction to nil does not get the full benefit the impact is watered down with the balance coming n July.

I would love to be wrong though  

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