28/08/2026
Farmers’ Averaging: A Valuable Tax Relief for UK Farmers in a Challenging Year.
The 2026 farming year has brought another reminder of just how unpredictable agricultural income can be. Across the UK, farmers are currently facing many challenges including:
- Drought and heatwave implications – affecting both crops and livestock farmers
- BTV disease outbreaks and vaccination decisions
- Input cost pressure – ever increasing prices
- Volatile milk prices – currently sat approximately 20% lower than this time last year.
- Environmental scheme uncertainty – with the final BPS delinked payments capped at £600.
Given these pressures, it is important that farmers’ averaging is not overlooked.
What is Farmers’ Averaging?
Farmers’ averaging is a tax relief designed to smooth out fluctuations in farming profits. Farming is unlike many other industry, with profits often heavily influenced by factors outside a farmer's control.
The relief allows qualifying farmers to average taxable profits over either two years or five years, potentially reducing tax liabilities during periods of volatile trading results.
In a lower-profit or loss making year, farmers may be able to recover income tax paid in previous years at a higher rate.
Does Every Farmer Qualify? Not necessarily.
Eligibility depends on factors including:
1. When you started trading. You need two complete tax years to claim two-year averaging and five complete tax years to claim five-year averaging.
2. The level of fluctuation between profits in different years. To qualify, there must be a difference of more than 25% between your profits for the current tax year and the averaged profits for the relevant comparison period (either the previous 2 or 5 tax years). Claims cannot be made where the difference is 25% or less.
3. The specific circumstances of the farming trade. You are not eligible to claim averaging relief where your business profits are calculated using the cash basis.
Example – Two-Year Averaging - Steve’s trading results are:
Tax Year Profit
2025/2026 £70,000
2024/2025 £20,000
If averaging is claimed, the profit for each year becomes:
(£70,000 +£20,000) ÷ 2 = £45,000
This example demonstrates the potential benefit of farmers' averaging. Without an averaging claim, part of Steve's profits for 2025/26 would have been taxed at the higher rate of 40%.
By averaging his profits over the two years, his taxable profit is reduced to £45,000 in each year, which, after deducting his Personal Allowance (£12,570), means that none of his profits fall within the higher-rate tax band.
This example assumes that Steve had no other sources of income during the tax year.
