Trading Income

Averaging Profits of Farmers and Creative Artists

For 2016/17 and subsequent years the period over which an individual carrying on a qualifying trade of farming, market gardening, or intensive rearing of livestock or fish, can average fluctuating trading profits is to be extended so that they will be able to average over either two or five consecutive tax years. The new five-year averaging relief applies where:

  • either A or B is less than 75% of the other, A being the average of the relevant profits of the first four tax years to which the claim relates, and B being the relevant profits of the last of the tax years to which the claim relates; or
  • the relevant profits of one or more (but not all) of the five tax years to which the claim relates are nil.

In addition to the introduction of five-year averaging claims, a further amendment will remove the marginal relief that currently applies where the profits of one year exceed 70% but do not exceed 75% of the other year. Therefore full two-year averaging relief will be available where the profits of one year are 75% or less of the profits of the other year. This latter amendment also applies to the averaging of profits for creative artists and has effect where the latest year is 2016/17 or a subsequent year.

Property and Trading Income Allowances

A £1,000 allowance will be introduced for both property income and trading income with effect from the 2017/18 tax year. Individuals with property income or trading income below £1,000 will no longer need to declare or pay tax on that income, and those with income above the allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance from their gross income.

Repeal of Renewals Allowance

The renewals allowance predates capital allowances and is intended to relieve the costs of replacing implements, utensils and articles used in a trade or a property business. It is intended to be used for small, inexpensive items. The allowance will be repealed with effect for expenditure incurred on or after 6 April 2016 for income tax purposes, and from 1 April 2016 for corporation tax purposes. Tax relief will be available for most items under the existing capital allowances regime or the new relief for residential landlords for replacement of furnishings, appliances and kitchenware, which takes effect from those same dates.

Trading Income Received in Non-monetary Form

Legislation will be introduced to ensure that trading or property income received in non-monetary form is fully brought into account in calculating taxable profits for income tax and corporation tax purposes. This measure will apply to trading and property business transactions occurring on or after 16 March 2016, and is not intended to alter existing principles, but to put beyond doubt the current position.