Farmers Mr and Mrs French have been successful in their appeal against Her Majesty’s Revenue and Customs (HMRC) to the First Tier Tribunal with regard to the limitation of sideways loss relief for their farming business.
The arguments in the case centred around whether or not Mr and Mrs French’s farming business had ceased when their dairy farming operations stopped after a thirty year period and they then let the farm for a period of three years before recommencing farming as arable farmers.
During that three year period their employee had continued to maintain the hedges and ditches on the farm, whilst the tenant ploughed up the grass, and then planted and harvested arable crops on the land. At the end of the three years Mr and Mrs French took the land back in hand and commenced an arable farming operation.
An important feature to the case was that of re-setting the five-year clock - without this subsequent losses would only be available for relief against future income from the same source. The tribunal found that Mr and Mrs French had ceased trading as soon as the land was let, despite ongoing maintenance on the farm by their employee, and commenced again when the letting ceased, so starting a new five-year clock.
Mike Harrison, Partner in the Landed Estates and Rural Business Group of UK top 20 Chartered Accountants Saffery Champness, says:
Interestingly, the tribunal also considered whether additional sideways loss relief was due as there were more than five years of continuous losses. It was decided that a period of 10 years loss relief could be extended in this case to a notional competent farmer, made up from seven years for Mr and Mrs French arable farming and three earlier additional years covering the conversion period by the tenant of the farm from dairy to arable.
Despite the periods of farming losses the tribunal did not question whether the business was being conducted on a commercial basis with the usual expectation of profits.
There are many intricacies and complications in this particular case, not least that of the French’s employee retained to work on the farm through the three years of letting. In addition it is very interesting to note that the tribunal accepts that there must be flexibility to the rules, particularly in areas where there are grey areas for interpretation. Others in similar circumstances should take encouragement from this result.
