Can I claim creative averaging as a writer?

You’re a writer.

You may or may not have heard of creative averaging.

What is it? Does it apply to you?

If you’re an author you’re likely to have fluctuating profits.  Good years and bad years.

There is a tax relief that allows you to average your profits over two consecutive years, lowering your total tax paid as you can utilise unused basic rate band in the poor year.

Averaging will only benefit you if the top rate of tax in the two consecutive years is different.

For example:

• Pay tax at 40% in two consecutive years – average won’t work for you
• Pay tax at basic rate one year and higher rate the next – averaging will save you money
• Liable to tax one year but no income in the next year – averaging will save you money

Conditions for claiming:

• you are a sole trader or in partnership (not operating through a Limited Company)
• your profits are wholly or mainly derived from literary, dramatic, musical or artistic works
• the works were created by you personally (or if in a partnership, one of the partners personally)

Scriptwriters cannot claim as their income comes from the service of writing rather than from the works concerned.

Think this could apply to you?  Want to know more? Get in touch lford@jonathanford.co.uk

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