Farmers’ averaging rules – changes for 2016/17 onwards

Farming profits can fluctuate significantly due to factors like weather, market conditions, and supply chain issues. To ease tax burdens, HMRC allows farmers to average their profits across multiple years. Previously, farmers’ averaging rules only permitted a two-year averaging period. However, changes from 2016/17 introduced a five-year option, providing more flexibility for managing taxable income.

Key Changes to Farmers’ Averaging from 2016/17

The Finance Bill 2016 introduced two major updates to farmers’ averaging rules:

• Five-year averaging – Farmers can now average profits over five years instead of just two.
• Removal of marginal relief – The previous system allowed some relief for those just over the threshold. This is no longer available.

A two-year averaging option remains available for those who prefer it.

Volatility Test Requirement

To use the five-year farmers’ averaging rules, businesses must pass a volatility test. This test ensures that profit fluctuations are significant enough to justify extended averaging.

If profits remain relatively stable, HMRC may not permit five-year averaging. Farmers should assess whether they meet the criteria before applying.

How We Can Help

Understanding farmers’ averaging rules can be complex, especially with the changes introduced in 2016/17. Our expert team at Lewis Brownlee can help you determine the best approach for your business.

If you need guidance on profit averaging and tax planning, contact us today. We’ll ensure you make the most of available tax reliefs.