Commentary

# B5.328 Adjustment of profits on averaging claim, and giving effect to the relief

## B5.328 Adjustment of profits on averaging claim, and giving effect to the relief

Where the profit of one of two consecutive tax years is 75% or less (70% or less before 2016/17) than the profit of the other year (or is nil), the profit of each year is treated as the average of the two profits1. This is subject to the rules on claims for relief involving more than two years set out in TMA 1970, Sch 1B, para 3 (see A4.202)2.

However, for tax years before 2016/17 there was a marginal relief where the relevant profits of one of the two years was between 70 and 75% of the profits of the other year. The adjusted profits were calculated as follows3:

### Step 1

Calculate the amount of the adjustment by applying the formula:

where:

1.

D is the difference between the relevant profits for the two years, and

2.

P is the profit for the higher year

### Step 2

Add the amount of the adjustment to the relevant profits of the tax year in which the profits are lower to arrive at the amount of the adjusted profits for that tax year.

### Step 3

Deduct the amount of the adjustment

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