Well, if you are an artist, author, designer or composer then you may be able to use special tax rules to average out (or perhaps even reduce entirely) your tax bills where you have a spike in income. E.g. a big rise or a big fall compared to the previous year.
This special tax rule came about because Government deemed it unfair that an author, for example, could be working on a book for three years, paying very little tax as income is low, and then when the book hits the Bestseller list a big chunk of those earnings is subject to the higher rates of tax (40% and 50%). If income had been spread out evenly over those 3 years then much less tax would have been due. Hence why ‘averaging’ was introduced.
As an example, if profits in year 1 are £10k and profits in year 2 are £50k then you can average out the assessment in year 2 so that it becomes £30k (£10k plus £50k divided by 2). Note that you do not have to go back and change your £10k assessed profits in year 1. Therefore, you have made £60k profit but only been assessed on £40k in total over the 2 years.
This can be a very neat way of reducing your taxable profits but only applies to the sale (or royalties derived from) literary or artistic works.
