(1) This Chapter enables an individual (a “taxpayer”) to make a claim (an “averaging claim”) if— (a) the taxpayer is, or has been, carrying on a qualifying trade, profession or vocation (alone or in partnership), and (b) the taxpayer's profits from it (“the relevant profits”) fluctuate from one tax year to the next. (2) For the purposes of section 222 (two-year averaging) a trade, profession or vocation is a “qualifying trade, profession or vocation” if— (a) it is farming or market gardening in the United Kingdom, (b) it is the intensive rearing in the United Kingdom of livestock or fish on a commercial basis for the production of food for human consumption, or (c) the taxpayer's profits from it are derived wholly or mainly from creative works. (2A) For the purposes of section 222A (five-year averaging), a trade, profession or vocation is a “qualifying trade, profession or vocation” if it falls within subsection (2)(a) or (b). (3) For the purpose of subsection (2) “creative works” means— (a) literary, dramatic, musical or artistic works, or (b) designs, created by the taxpayer personally or, if the qualifying trade, profession or vocation is carried on in partnership, by one or more of the partners personally. (4) For the purposes of this Chapter references to the relevant profits of a tax year are to profits before making any deduction for a loss made in any tax year. (5) If the taxpayer makes a loss in the qualifying trade, profession or vocation in a tax year, the relevant profits of the tax year for the purposes of this Chapter are nil. (6) For the purposes of this Chapter references to the relevant profits of a tax year are to profits after any adjustment made under Chapter 16ZA (compensation for compulsory slaughter of animals).

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221A Claim not available where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

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222 Circumstances in which claim for two-year averaging may be made

(1) An averaging claim may be made under this section in relation to two consecutive tax years in which a taxpayer is or has been carrying on the qualifying trade, profession or vocation if— (a) the relevant profits of one of the tax years are less than 75% of the relevant profits of the other tax year, or (b) the relevant profits of one (but not both) of the tax years are nil. (2) The earlier of the two years to which an averaging claim under this section relates may be a tax year in relation to which an averaging claim under this section or section 222A has already been made. (3) An averaging claim may not be made under this section in relation to a tax year if an averaging claim has already been made under this section or section 222A in relation to a later tax year in respect of the trade, profession or vocation. (4) An averaging claim may not be made under this section in relation to the tax year in which— (a) the taxpayer starts, or permanently ceases, to carry on the trade, profession or vocation, or (b) in the case of a trade, profession or vocation within section 221(2)(c), it begins or ceases to be a qualifying trade, profession or vocation. (5) An averaging claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the second of the tax years to which the claim relates. (6) But see section 225(4) (extended time limit if profits adjusted for some other reason).

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222A Circumstances in which claim for five-year averaging may be made

(1) An averaging claim may be made under this section in relation to five consecutive tax years in which a taxpayer is or has been carrying on the qualifying trade, profession or vocation if the volatility condition in subsection (2) is met. (2) The volatility condition is that— (a) one of the following is less than 75% of the other— (i) the average of the relevant profits of the first four tax years to which the claim relates; (ii) the relevant profits of the last of the tax years to which the claim relates; or (b) the relevant profits of one or more (but not all) of the five tax years to which the claim relates are nil. (3) Any of the first four tax years to which an averaging claim under this section relates may be a tax year in relation to which an averaging claim under this section or section 222 has already been made. (4) An averaging claim (“the subsequent claim”) may not be made under this section if an averaging claim in respect of the trade, profession or vocation has already been made under this section or section 222 in relation to a tax year which is later than the last of the tax years to which the subsequent claim relates. (5) An averaging claim may not be made under this section in relation to the tax year in which the taxpayer starts, or permanently ceases, to carry on the trade, profession or vocation. (6) An averaging claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the last of the tax years to which the claim relates. (7) But see section 225(4) (extended time limit if profits adjusted for some other reason).

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223 Adjustment of profits

(1) If a taxpayer makes an averaging claim, the amount taken to be the taxpayer's profits of each of the tax years for which the claim is made is adjusted in accordance with this section. (2) But this is subject to paragraph 3 of Schedule 1B to TMA 1970 (claim given effect in the last of the two or five tax years). (3) The amount of the adjusted profits of each of the tax years to which the claim relates is the average of the relevant profits of those tax years. (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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224 Effect of adjustment

(1) The adjusted profits are taken to be the relevant profits of the tax years to which the claim relates for all income tax purposes, including the further application of this Chapter. (2) This is subject to— (a) subsection (3) of this section and section 225(2), and (b) paragraph 3 of Schedule 1B to TMA 1970. (3) If the relevant profits of one of the tax years are nil, this Chapter does not prevent the taxpayer from obtaining relief under the Income Tax Acts for a loss made by the taxpayer in the tax year in question or any other tax year. (4) A claim by the taxpayer for relief under any other provision of the Income Tax Acts for any of the tax years to which an averaging claim relates (“the other claim”)— (a) is not out of time if made on or before the last date on which the averaging claim could have been made, and (b) if already made, may be amended or revoked on or before that date. (5) For this purpose— (a) references to a claim include an election or notice, and (b) if the other claim is made in a return, the reference to amending or revoking the other claim is to amending the return by amending or omitting the other claim. (6) For provision determining in which tax year a claim, amendment or revocation made as a result of subsection (4) has effect, see paragraph 4 of Schedule 1B to TMA 1970 (claim, amendment or revocation given effect in the last of the two or five tax years).

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225 Effect of later adjustment of profits

(1) This section applies if, after the taxpayer has made an averaging claim, the relevant profits in any one or more of the tax years to which the claim relates are adjusted for another reason. (2) The averaging claim is ignored. (3) But this does not prevent a further averaging claim from being made in relation to the taxpayer's profits as adjusted for the other reason. (4) A further averaging claim is not out of time as long as it is made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the adjustment for the other reason is made.

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225ZA Application of Chapter 16ZA

(1) This Chapter applies if— (a) an animal treated as trading stock of a farming trade is slaughtered under a disease control order, (b) the animal is not part of a production herd of a class in respect of which a herd basis election may be made under section 126, and (c) the farmer receives or will receive compensation for the animal. (2) Such an animal is referred to in this Chapter as a “relevant animal”. (3) “Disease control order” has the same meaning as in section 126.

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225ZAA Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

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225ZB Right to make claim

(1) The farmer may make a claim under this section. (2) A claim may only be made in respect of the total compensation profit for a period of account. (3) The total compensation profit for a period of account is the sum of the profits which the farmer makes for all the relevant animals slaughtered in that period. (4) For the purposes of this Chapter the profit which the farmer makes for a relevant animal is— (a) the amount by which the compensation for the animal exceeds its book value, or (b) if the trade is carried on in partnership, the farmer’s share of that amount, determined in accordance with Part 9. (5) Nothing in this section prevents a claim being made before the amount of the compensation has been finally determined.

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225ZC Book value

(1) For the purposes of this Chapter the book value of an animal is the value shown in the accounts as the value of the animal at the start of the period of account in which it was slaughtered. (2) If, for an animal, no value is shown in the accounts as that value, the book value is as follows— (a) in the case of an animal which was born in the period of account in which it was slaughtered and did not become part of the trading stock in any other way, the book value is 75% of the compensation payable for it, (b) in the case of an animal in relation to which section 172C (trading stock supplied by trader) or 172E (acquisitions not made in the course of trade) applies, the book value is the cost treated as incurred under section 172C(2) or 172E(2) as the case may be, and (c) in any other case, the book value is the cost of acquiring the animal for the purposes of the trade.

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225ZD Effect of claim for spreading profits

(1) If the farmer makes a claim under section 225ZB in respect of the total compensation profit for a period of account (“period X”), the profits of the trade carried on by the farmer are to be adjusted for income tax purposes as follows— Step 1 Treat the compensation payable for all of the relevant animals slaughtered in period X as a receipt of that period (regardless of when the compensation is finally determined or paid). Step 2 If the farmer makes a profit in the trade in Year 1, deduct from the profits of Year 1 an amount equal to— the total compensation profit for period X, or if the total compensation profit exceeds the profits of Year 1, such portion of the total compensation profit as will reduce the profits to nil. “Year 1” is— the tax year which includes the whole or a part of period X, or if there is more than one, the earliest of those tax years. Step 3 If— there is more than one tax year which includes the whole or a part of period X, either— the farmer did not make a profit in the trade in Year 1, or by virtue of step 2, a portion only of the total compensation profit for period X is deducted from the profits of Year 1, and the farmer makes a profit in the trade in the next tax year (“Year 2”), deduct from the profits of Year 2 the applicable amount. In a case where the farmer did not make a profit in Year 1, “the applicable amount” is— the total compensation profit for period X, or if the total compensation profit exceeds the profits of Year 2, such portion of the total compensation profit as will reduce the profits to nil. In a case where a portion only of the total compensation profit for period X is deducted from the profits of Year 1, “the applicable amount” is— an amount equal to the difference between the total compensation profit for period X and the portion so deducted, or if that amount exceeds the profits of Year 2, such portion of that amount as will reduce the profits to nil. No further deduction is to be made in respect of the total compensation profit for period X from the profits of any later tax year which includes a part of that period. Step 4 Include in the profits of each of the 3 consecutive tax years following Year 1 an amount equal to one third of the total amount deducted by virtue of steps 2 and 3. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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225ZE Adjustment: cessation of trading

If the farmer permanently ceases to carry on the farming trade before the end of the second of the 3 consecutive tax years following Year 1, step 4 in section 225ZD(1) is to be replaced by the following two steps— Step 4 Divide the total amount deducted by virtue of steps 2 and 3 by the number of tax years (“the remaining tax years”) in which, or in any part of which, the farmer carried on the farming trade, starting with Year 1. Step 5 Include in the profits of each of the remaining tax years the amount resulting from the division in step 4.

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225ZF Time limits etc for spreading claim

(1) A claim under section 225ZB must be made on or before the first anniversary of the normal self-assessment filing date for Year 1. (2) If the profits of a tax year are to be adjusted or further adjusted in accordance with this Chapter after an assessment for that tax year has become final and conclusive, any assessment or repayment or discharge of tax that is necessary to give effect to this Chapter must be made. (3) But repayment or discharge of tax is due only if a claim for it is made.

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225ZG Interpretation

In this Chapter— “animal” means any animal or other living creature; “farming trade” means a trade of farming; “the farmer”, in relation to a farming trade, means the individual who (alone or in partnership) carries on that trade; “total compensation profit” has the meaning given by section 225ZB.

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225ZH Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade on the cash basis.

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225A Meaning of “oil extraction activities”

(1) In this Chapter “oil extraction activities” means activities within any of subsections (2) to (5) (but see also section 225M(6)). (2) Activities of a person in searching for oil in the United Kingdom or a designated area or causing such searching to be carried out for that person. (3) Activities of a person in extracting, or causing to be extracted for that person, oil at any place in the United Kingdom or a designated area under rights which— (a) authorise the extraction, and (b) are held by that person. (4) Activities of a person in transporting, or causing to be transported for that person, oil extracted at any such place not on dry land under rights which— (a) authorise the extraction, and (b) are held by that person, if the transportation meets condition A or B (see subsections (6) and (7)). (5) Activities of a person in effecting, or causing to be effected for that person, the initial treatment or initial storage of oil won from any oil field under rights which— (a) authorise its extraction, and (b) are held by that person. (6) Condition A is that the transportation is to the place where the oil is first landed in the United Kingdom. (7) Condition B is that the transportation— (a) is to the place in the United Kingdom, or (b) in the case of oil first landed in another country, is to the place in that or any other country (other than the United Kingdom), at which the seller in a sale at arm's length could reasonably be expected to deliver it (or, if there is more than one such place, the one nearest to the place of extraction). (8) The definition of “initial storage” in section 12(1) of OTA 1975 applies for the purposes of this section. (9) But in its application for those purposes in relation to the person mentioned in subsection (5) and to oil won from any one oil field, that definition is to have effect as if the reference to the maximum daily production rate of oil for the field mentioned in that definition were to a share of that maximum daily production rate proportionate to that person's share of the oil won from that field. (10) In this section “initial treatment” has the same meaning as in Part 1 of OTA 1975 (see section 12(1) of that Act).

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225B Meaning of “oil rights”

In this Chapter “oil rights” means— (a) rights to oil to be extracted at any place in the United Kingdom or a designated area, or (b) rights to interests in or to the benefit of such oil.

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225C Meaning of “ring fence income”

In this Chapter “ring fence income” means income arising from oil extraction activities or oil rights.

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