Self employed taxes - I have a question about averaging

[grazerl]

Sole trader here who's eligible for averaging. I've been on the gov.uk website but don't get it at all. Does averaging help you pay less tax overall?

Can you help me with this example please:

Profit on 2020/21
5,000
Profit on 2021/22
25,000

Once averaging is applied, profit is £15,000

That's all I get from the website. What happens after that? Am I paying tax on £15K only? What about the rest of the £10K, which was "sent to" last year?

I'm probably being really dim, but some help would be appreciated. TIA

I think…

With averaging you would pay tax on £15k in each of the two years. So about £500 x 2 = £1k.

Without averaging you pay £0 in the first year (profit less than the personal allowance) and around £2.5k in the second year (£25k - £12570) x 20%.

So that means you do get a saving on tax?? I'm confused because my accountant dismissed it as not saving any tax but just moving it around. I don't have any reason to not believe her but she refuses to explain saying it's complicated

If you don't trust your accountant, get a new one.

It can save tax, as if you paid tax in one year but not the next you can average back to spread the profits over the 2 years.

There are only very specific trades who qualify for averaging.

I agree with PP, it's time to change your accountant if they won't look into it for you. If a client asks me a question then I always explain it clearly and link them to HMRC guidance on it.

(I personally don't deal with averaging because it is a pain in the neck).