Thorne
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 July 2014 |
| Neutral Citation | [2014] UKFTT 730 (TC) |
| Date | 30 July 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 730 (TC)
Judge Alison Mckenna, Mrs Gill Hunter
Iain Bottrill of Kent and Sussex Accountancy Services appeared for the Appellant
Anthony O'Grady, HMRC Officer, appeared for the Respondents
Income tax - Self assessment tax return - Appeal against closure notice - Loss relief - Income Tax Act 2007 ("ITA 2007"), Income Tax Act 2007 section 66s. 66 - Was trade carried on with a view to the realisation of profits - No - Appeal dismissed.
The First-tier Tribunal (FTT) has dismissed a taxpayer's appeal against HMRC's decision to disallow her claim for sideways loss relief, finding that as her equestrian breeding and asparagus farming trades were not legally separate and the loss claim was amalgamated in the tax return to cover both trades the claim should be considered in relation to one composite trade. Looking at the composite trade the FTT found that it was not run on a commercial basis and it was difficult to see how the taxpayer could have had the view to the realisation of profits.
Judith Thorne (the Appellant) included a self employment income page in her 2008-09 tax return for her trade as an "Equestrian Breeder and Farmer" showing a loss of £79,424. She made a claim for loss relief under the Income Tax Act 2007 (ITA 2007), Income Tax Act 2007 section 64 subsec-or-para 1ss. 64(1) and (2) to set off these losses against other income for 2008-09. For the three years prior to 2007-08 the Appellant's trade was included in her returns as "Equestrian Breeder", but from 2007-08 it was described as "Equestrian Breeder and Farmer" (with the farming part referring to asparagus farming). HMRC refused the Appellant's claim to sideways loss relief on the basis that the trade was not commercial under ITA 2007, Income Tax Act 2007 section 66s. 66 and the appellant appealed against this decision.
HMRC's case was that the equestrian and asparagus trades should be assessed together as they were not legally separate businesses and had been included in one self employment return with an amalgamated claim to sideways relief. HMRC did not dispute the existence of a trade, but submitted that during 2008-09 the trade had not been carried out on a commercial basis with a view to the realisation of profits. Referring to the case of Wannellv Rothwell (HMIT)TAX[1996] BTC 214 HMRC submitted that with regard to the equestrian side of the trade the Appellant was not seriously interested in profit but an amateur or dilettante. HMRC argued that as the equestrian trade had produced losses in the five years to 2009 and given that it would take three years from planting the asparagus in 2009 to obtain the first crop it was difficult to see how the appellant had an expectation of profit in 2008-09.
The Appellant argued that the reasonable expectation of profit test had been met, the majority of losses related to the start up costs of the asparagus trade, HMRC had wrongly concentrated on the equestrian trade losses and the sideways loss relief should be split into two categories.
The FTT found that as the equestrian breeding and asparagus farming trades were not legally separate and the loss claim was amalgamated in the tax return to cover both trades the claim should be considered in relation to one composite trade. Looking at the composite trade the FTT found that it was not run on a commercial basis because although the asparagus farming appears to have been run on a commercial basis the equestrian breeding was not. The equestrian trade "made no money but bore the costs of keeping three horses, namely a mare past her breeding age, a gelding, and filly whose future was then uncertain" and could not reasonably be described as a venture being run on a commercial basis and agreed with HMRC that the Appellant was not seriously interested in profit with regard to the trade but an amateur or dilettante. The FTT also found that although the taxpayer did have a view to the realisation of profits for the asparagus business, looking at the two businesses together it was difficult to see how the taxpayer could have had the view to the realisation of profits as there were escalating losses in the equestrian business and it would take three years from first planting asparagus in 2009 to obtain the first crop of asparagus.
The Appellant's appeal was accordingly dismissed.
In this case the FTT accepted that the part of the Appellant's trade relating to asparagus farming was run on a commercial basis and there was a view to the realisation of profit, however as the FTT ruled that the loss claim should be considered in relation to the combined trade of equestrian breeder and asparagus farmer on that basis the FTT found that the composite trade was not commercial.
Trading losses are often made during the first few years of a new business and the utilisation of such losses and the structure of the new business should be considered prior to the commencement to maximise relief.
[1]This appeal concerns the Appellant's self assessment tax return for the year 2008-9 and her claim to "sideways" loss relief under Income Tax Act 2007 section 64 subsec-or-para 1 section 64 subsec-or-para 2s.64(1) and (2) of the Income Tax Act 2007 ("ITA").
[2]In her 2008-9 return, the Appellant reported her remuneration from her employment with tax deducted at source, but also submitted a self employment income page covering the twelve month period ended 5 April 2009. Her self employment was described as "Equestrian Breeder and Farming", and she reported losses (including capital allowances) of £79,424.00. She made an election to set off these losses against the other income reported for 2008-2009, giving rise to overpaid tax of £31767.60.
[3]The Appellant had first reported her self employment income as an "Equestrian Breeder" on her 2004-2005 return. Similar information appeared in her returns for 2005-2006 and 2006-2007. In 2004-5 and 2005-6 capital losses were reported but no claim for sideways relief was made against her other income. On the Appellant's 2007-2008 return, the self employment was described differently, as "Equestrian Breeder & Farming". This description was also given in 2008-2009.
[4]The claim to "sideways" loss relief in the 2008-9 return was made under Income Tax Act 2007 section 64 subsec-or-para 1 section 64 subsec-or-para 2s.64(1) and (2) of ITA, which is subject to the restrictions imposed by Income Tax Act 2007 section 66 subsec-or-para 1 section 66 subsec-or-para 2 section 66 subsec-or-para 3sss. 66(1), (2) and (3). HMRC opened an enquiry into the Appellant's 2008-2009 tax return and refused the claim to sideways relief on the basis that the conditions in Income Tax Act 2007 section 66s. 66 ITA had not been satisfied. HMRC issued a Closure Notice and amended the return, resulting in the losses being disallowed and tax of £2.00 being due. The Appellant...
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Thorne v Revenue and Customs Commissioners
...2005 (“ITTOIA 2005”), s. 9. The Upper Tribunal (UT) set aside a First-tier Tribunal (FTT) decision on sideways loss relief in Thorne TAX[2014] TC 03851 and remitted the case back to the FTT. The UT decided that it was an error of law for the FTT not to reach a conclusion on whether the taxp......