5 March 2024

Authors Averaging

Authors Averaging is a useful relief available to Authors.

Authors Averaging is a way of levelling out income over a few years where a high-income year is followed or preceded by a low-income year. The adjustment always happens in the later year and does not alter the previous year’s tax submission.

Averaging has some restrictions; Authors cannot average in their first or last year of trading or if the difference between years is less than 75%.

We have set out an example below before and after Authors Averaging where an Author has been writing for three years. In years 1 and 2, the author makes a loss of £1,000 each year and in year three receives advances to generate a profit of £100,000.

Tax without averaging

Tax Bracket	Year 1	Year 2	Year 3
Total Income	-£1000	-£1000	£100,000
Loss Carried Forward	-£1000	-£1000	£-2000
Total Taxable Income	£0	£0	£98,000
£12,500 @ 0%			£0
£37,500 @ 20%			£7,500
Balance @ 40%			£19,200
Total Tax	£0	£0	£26,700

Tax after averaging

Tax Bracket	Year 1	Year 2	Year 3
Total Income	-£1000	-£1000	£100,000
Averaging Adjustment		£50,000	-£50,000
Loss Carried Forward	-£1000	-£1000	-£2000
Total Taxable Income	£0	£50,000	£48,000
£12,500 @ 0%		£0	£0
£37,500 @ 20%		£7,500
£35,500 @ 20%			£7,100
Tax Adjustment		-£7,500	£7,500
Total Tax	£0	£0	£14,600

In this simplistic example, by averaging, profits that would have been taxed at 40% would have been taxed at 0% and 20%.

Typically, an author will write a book over several years, look for an agent, sign a contract and then receive a significant advance. In many instances Authors wait for their first advance to arrive before registering for self-assessment as a trade, this can be costly as they will be unable to average the advance in the first year.

We recommend that Authors register as soon as they start writing to ensure that averaging is available to them.

The above is intended as a rough guide to illustrate the possibilities of authors averaging. We have not considered National Insurance or Student Loan Repayment implications. Care must be taken as Authors Averaging can also increase the level of tax in some instances.

Authors Averaging