No sideways loss relief

Test to determine reasonable expectation of profit

The taxpayers had a dairy farm which was profitable until 2005-06. From then it made losses. That was in part due to a drop in milk prices but also an increase in their borrowings after installing a robotic milking shed and buying land. They claimed sideways loss relief against their general income (ITA 2007  s 64). HMRC refused on the ground that a competent farmer would not have had a reasonable expectation that the farm would not become profitable in the next five years (s 67 and s 68). The First-tier Tribunal dismissed the taxpayers’ appeal.

The case proceeded to the Upper Tribunal.

The judges agreed with the First-tier Tribunal’s conclusion that the taxpayers needed to show a specific reason why profits would not be made for the loss period despite running the business competently. It was not enough simply to...