A recent HMRC tribunal has seen the Court of Appeal side with HMRC’s Upper Tribunal in relation to an organic farming business that had continued to incur annual losses.
For around 17 years, the farm business didn’t show a profit, despite increases in land farmed and changes to the running of the business. The case centred on whether a “competent farmer” (not that the actual farmer was incompetent) would have no reasonable expectation of profit for the farm either.
Normally, up to a 5 year loss would be allowable before a farm would be expected to make a profit, however, in exceptional circumstances, longer periods of losses may be allowable, such as the creation of a fruit farm whereby getting a good level of fruit production can take quite a few years, and a “competent farmer” would have similar results.
This case highlights the need to consider the farming approach if prolonged losses are expected to be incurred and these losses are to be offset against other income each year, known as “sideways loss relief”.