Finance Act 2014 increased the averaging of farm profits from three years to five years from 2015.
Who can make an election for farm averaging?
The farmer must have paid tax on farm profits for each of the 4 immediately preceding years of assessment.
What effect does the change from three to five years have?
Where a farmer first elected to average in 2014, the period of averaging for 2015 will be 4 years and not five years.
Special transitional measures are provided for those farmers who elect to opt out of averaging in 2015 and 2016.
2015:Can opt out if income averaging was in operation for the preceding 3 years
2016:Can opt out if income averaging was in operation for the preceding 4 years.
For those farmers who elect to opt out in 2015 the years 2012 and 2013 will be reviewed. This is to ensure the amount charged is not less than what was charged in 2014.
Who is not eligible for averaging of farm profits?
Farmers who, or whose spouses, carry on another trade or profession cannot elect for income averaging. Unless that trade is in relation to on farm diversification and conducted on the farmland. When the spouse is separately assessed this does not apply.
Can a farmer opt out of income averaging for a single year?
A farmer may elect to opt out of income averaging for a particular year by including a claim to that effect on the tax return for that year. Only one such election can be made in any five year period.