Averaging Relief for Creators of Literary or Artistic Works: Who Can Claim and How

Averaging relief lets authors, artists, composers and other creators add two consecutive years of trading profit together and be taxed on the average, which pulls a strong year back out of the higher-rate band. It is available only where the lower year’s profit is less than 75% of the higher year’s, or where one of the two years is nil.

1. What averaging relief does to your tax bill

Averaging spreads two consecutive years of trading profit evenly across both years, so a year that spiked is not taxed as though it were your normal income. Income tax is charged year by year against a fixed set of allowances and bands.

That works for people paid in steady monthly amounts.

It works badly for people paid when a book lands, an advance clears, or a commission finally settles.

The shape is familiar to anyone who has spent two years on something and been paid for it in one. In the lean year, part of your personal allowance goes unused because there was not enough profit to absorb it. In the strong year, the same money that quietly funded the lean year gets taxed at the higher rate. Averaging corrects that mismatch on paper, by moving profit from the high year into the low one.

What it does not do is reopen the earlier year. You pay the tax and Class 4 National Insurance for that year in full and on time, or interest starts running. The whole effect of the claim lands in the later year’s tax calculation instead, as an adjustment.

One structural point worth getting straight early: averaging is a relief for individuals and partners, not companies! If you have already incorporated, it is off the table entirely, which is one of the quieter arguments in the sole trader or limited company decision for creators with genuinely lumpy income.

2. Who counts as a creator for averaging relief?

You qualify if more than half of your profit comes from literary, dramatic, musical or artistic works, or designs, that you created personally, and if that profit comes from selling those works or letting others reproduce them. HMRC treats the statutory “wholly or mainly” test as met once you pass 50% of profit.

The distinction that decides most cases is not what you make. It is how you get paid for it.

Profit from the work itself qualifies. Profit from providing a service does not, even when the service is highly skilled and the output is protected by copyright.

Work that qualifies for averaging relief

Authors selling written work qualify, and so do royalties for allowing reproduction.

HMRC’s guidance is explicit that advances on royalties count, and the Treasury confirmed in 2016 that recording artists’ advances sit within the averaging rules, which matters for musicians whose income arrives as a large advance followed by two thin years.

Composers, illustrators, sculptors and painters qualify on the same basis. So does a software writer whose income comes from royalties for reproducing code they wrote. Designs are named in the legislation alongside literary, dramatic, musical and artistic works, so designers who sell or license their own designs are in scope

An author does not lose the relief because a small slice of income comes from something else, such as personal appearances, provided the majority still comes from the works.

Work that does not qualify for averaging relief

An architect paid for services does not qualify, even where some income comes from selling copyright-protected material.

Nor does a computer programmer paid to write scripts to order, because the income is for the service rather than the work.

Two exclusions catch people out more often than either of those. Works of craft are outside the relief, so furniture making and dressmaking do not qualify however original the piece. And because the work has to be created by you or one of your partners personally, anyone running a studio where employees produce the output cannot claim, no matter how creative the business is.

If your profit sits somewhere between these categories, it is worth having accountants for authors and other creators look at the split before you commit to a position on the return.

3. The 75% test your two years have to pass

The lower of your two years has to come in below 75% of the higher year, or one of the two years has to be nil. Miss that and there is no claim, however uneven the two years feel.

The test runs in both directions, which is the part most guidance skips. HMRC’s own worked example uses a year of £32,000: the neighbouring year satisfies the condition if it comes in below £24,000 or above £42,667. You are not looking for a bad year next to a good one. You are looking for a gap of more than a quarter in either direction.

A trading loss counts as nil for this purpose, so a loss-making year always meets the condition as long as the other year is not also nil. Treating the loss as nil also keeps it intact: the loss itself stays available for the usual loss relief claims, and averaging does not shrink it.

4. How the averaging relief calculation works in practice

Add the two years’ profits together, divide by two, and both years are taxed on that figure. The profits you use are the tax-adjusted figures after capital allowances and balancing charges, not turnover and not accounting profit.

Take an author with £40,000 of profit in 2024/25 and £10,000 in 2025/26. The lower year is well under 75% of the higher, so the claim is available, and both years become £25,000. The 2025/26 profit is increased by £15,000 and goes in box 72 of the Self-employment (full) pages. The 2024/25 profit falls by the same amount, and the tax and Class 4 National Insurance that change as a result are worked out as though that return had been amended, then entered as an adjustment on the 2025/26 return.

Losses work the same way with one extra step. A £20,000 loss in one year alongside £32,000 of profit in the other averages to £16,000 for each year, because the loss counts as nil in the calculation. The £20,000 loss is then claimed separately under the normal rules, so you are not choosing between averaging and loss relief.

5. When an averaging relief claim is worth making, and when it is not

Averaging saves tax only where the two years are taxed at different rates. If both years sit squarely in the same band from start to finish, the claim moves profit around and changes nothing.

The situations where it pays are specific:

• One year in the basic rate band and the next in the higher rate band, which is the classic advance-plus-lean-year pattern and usually the biggest saving.
• A year with tax to pay next to a year where profit falls under your personal allowance, so the allowance would otherwise be wasted.
• A loss year next to a strong year, where averaging pulls the strong year down and the loss stays available for separate relief.
• Years where Class 4 National Insurance is affected as well, since the averaged profit drives that too.

The situations where it does nothing are equally clear. Two consistently higher-rate years produce no benefit. Two years both below the personal allowance produce no benefit either.

There are second-order effects worth pricing in before you claim. Raising the later year’s profit raises the payments on account due for the following January and July, which can make a claim that saves tax overall still feel expensive in the short term. Changing the earlier year’s profit can also disturb other claims and allowances tied to that year’s income, and HMRC lets you revisit those claims as part of the averaging claim rather than leaving them stranded.

Note: You cannot claim averaging and use the cash basis. Since 6 April 2024 the cash basis has been the default for sole traders and partnerships, which means a creator who simply files without thinking about it can lose the relief by accident.  To claim averaging you now have to opt out of the cash basis and use accrual accounting.

6. Getting averaging relief right for the work you make

WallsMan Creative are accountants for the creative industries, and averaging is one of the reliefs we deal with most often because our clients are the people it was written for: authors, illustrators, composers, recording artists and designers whose income arrives in bursts rather than instalments.

We handle the qualifying analysis, the basis election that has to sit behind it, and the timing of the claim across a pair of years.

Averaging is a narrow relief with a wide payoff when it applies. It works only for profit from works you created personally, only where the two years differ by more than a quarter, and only if you are not sitting on the cash basis by default. Get those three things lined up and a year that would have been taxed at the higher rate is taxed at something closer to what your work actually earns across the pair.

If you are looking at a strong year next to a thin one and are not sure whether a claim is available or worth making, we are happy to look at the two years with you and tell you either way.