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Farmer's Averaging & Trading Losses

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This query relates to both 2 and 5 year averaging claims.  Obviously I'm aware of the fact trade losses are treated as nil profits in years where averaging is claimed.  My query is - what happens to trade losses that were perhaps offset sideways or carried forward in years where averaging has been claimed?  Do you have to re-jig the losses claimed or carried forward because you're effectively giving a 'profit' for that year of loss?  Or does the loss claim / carried forward losses just remain as was?  This query has only been raised recently at work and I'm struggling to find a proper answer anywhere online etc.

My initial thoughts, and what would make sense and make life easier, is that losses claimed / carried forward get left alone.  No need for any amendments.  The whole point of averaging is not to change a person's income as such, but to make a more even plateau of tax payments over a period of time.  If you look at averaging and when a person claims tax credits, the averaged profit is completely ignored and the actual profit or loss is used for the tax credits claim.  It would therefore make sense and make it streamlined if the same outlook was given to losses claimed / carried forward.

The Iris software doesn't make any adjustment to the losses, which I'm hoping is correct!

This would be an utter nightmare if every time an averaging claim is made and there's a year of losses, that amendments are needed for how those losses have been treated.

If someone has any thoughts, it would be greatly appreciated!


Replies (3)

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By trust.pem
15th May 2018 09:23

Unfortunately you have to rework the treatment of the losses as a result of making an averaging claim, otherwise it is quite possible that you would be claiming a loss against no income. If the averaging adjustment makes no difference to the benefit of loss relief, it does make your calculations that much easier, but you do need to check.

Do the averaging adjustments
calculate the best utilisation of the losses
Adjust the tax figure on the current year return and submit your workings with the return to show how you have calculated the tax adjustment.

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Replying to trust.pem:
By Gemeelio
16th May 2018 09:14

Thanks - that does make more sense. So in simple terms, say in 14/15 there was a loss arising that was carried back to 13/14, does this whole loss c/b claim need to get revised? As effectively with the averaging, we are now saying there is 'x' profit rather than 'x' loss? Similarly where original trading losses were carried forward, do these also get removed/reverted to nil because there is now effectively a profit as a result of averaging? Or do the loss claims/carried forward losses just get restricted for what the averaged profit is?

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Replying to Gemeelio:
By Tax Dragon
16th May 2018 09:49

In that circumstance, the existing claim can be varied (s224(4)) if this gives an advantage (as trust.pem envisages), but if you prefer not to, you don't have to - the existing claim is protected from automatic amendment by s224(3).

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