How are self-employed farmers taxed in the UK, and what is farmers' averaging relief?

Full answer

Self-employed farmers are taxed under the normal Income Tax and National Insurance rules for the self-employed: profits after allowable expenses are taxed at 0% within the £12,570 Personal Allowance, 20% basic rate up to £50,270, 40% higher rate up to £125,140, and 45% above that, with Class 4 National Insurance charged at 6% on profits between £12,570 and £50,270 and 2% above that for 2026/27. What makes farming distinctive is farmers' averaging relief, a long-standing provision recognising that farm profits fluctuate heavily year to year due to weather, commodity prices and livestock cycles. Under this relief, a farmer can elect to average their profits over either two or five consecutive tax years, smoothing a spike year against a weak year and potentially avoiding being pushed into the 40% or 45% bands in a single good year, or losing Personal Allowance to the £100,000 taper. To qualify for averaging, the difference between the highest and lowest year's profits generally needs to exceed a threshold (broadly 25% for two-year averaging), and the election must be made within specific time limits on the relevant tax return. Farmers can also claim Annual Investment Allowance on machinery and equipment, agricultural buildings allowances in some cases, and herd basis elections for the tax treatment of production livestock. Many farming businesses operate as partnerships (often with family members), which changes how profit shares and NI are calculated for each partner individually. Use the Self-Employed Tax calculator to estimate your own liability, then consider whether averaging would reduce your overall tax across the relevant years.

Try the calculator

More answers

• How are self-employed fishermen taxed, and can they claim the Seafarers' Earnings Deduction?