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TonyTax
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farming losses 6+ consecutive years of losses off set sideways

Resolved Question:

farming losses 6+ consecutive years of losses off set sideways against general income.
HMRC have revisited 2009/10, 10/11, 11/12 and 2012/13 saying that the losses are restricted by S 67 (2) ITA 2007. and also quoted BIM 85620 & 85625.
Our client has been carrying out land and building repairs and maintainance and capital expenditure over the years and increasing livestock numbers with the intention to retire within the next two years.
The losses each year are between £5 and £10k before capital allowances.
S 66 test is the trade carried on on a commercial basis and with a view to the realisation of profit.
The meaning of commercial basis was expanded by XXXXX XXXXX in the Wannell v Rothwell (1996) case.
Also legislation mentions losses before capital allowances.
What legislation justfies our claim for trading losses, and can capital allowances be
off set side ways irrespective of trading losses? Thanks Cecil Dickson
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

I'm afraid that the law is pretty tough on this and there is no other legislation which overrides Sections 66 and 67 Income Tax Act 2007. If there was, those sections would be pointless. The capital allowances cannot be relieved sideways separately from the trading losses.

I used to have this problem when I worked for a firm with many farming clients and the partner I worked for knew his farm tax inside out. We did cite repair and maintenance expenses as the expenses which pushed the farm into losses and that the underlying business was sound but the tax office would not accept our arguments and one even suggested the client spend more time farming and less time doing repairs and maintenance. That didn't go down well.

 

My former boss frequently advised farming clients to stagger major work so as to achieve a year of profitability which some took on board and some didn't. In your case, the tax office could argue that your client is fattening up the business for sale when he retires and appears not to be running it with a view to making trading profits so I wouldn't mention that in mitigation.

Your only recourse is to apply for a tribunal hearing where your case can heard by an independent panel.

I'm sorry I cannot be more positive. Let me know if you have any further questions.

Customer: replied 3 years ago.

7th April 2014


 


Good morning


Thanks for the answer


My client farms 45 acres approx and has a suckler herd of 60 cattle producing quality beef animals.


Is there any other legislation in addition to S66 to establish whether the trade is commercial and with a view to realisation of profit.


Is it possible to go back and disallow expenditure for say 2009.10 which would show a profit before capital allowances.? Or is this entering anti avoidance territory.


Regards Cecil

Expert:  TonyTax replied 3 years ago.
I'm not aware of any legislation that overrides Section 66 and 66 ITA 2007. Every case like this is decided on its merits and your only real opportunity to have the losses allowed is to go to a tribunal to argue your case there. At least any decision made by a tribunal will be independent.

You are too late to amend the 2009/10 tax return I'm afraid and it would look somewhat suspicious even if you were not out of time.

I don't know whether you are a specialist in farm accountancy but in case you aren't, it might be worth seeking out some advice in that area as there may be loopholes but I really don't hold out much hope that there are I'm afraid. The rules were put in place for a reason and only extreme events such as the recent floods, other extreme weather events in farm areas or fire damage or another form of destruction can be used in mitigation in my experience.
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