Thorne v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 July 2016 |
| Neutral Citation | [2016] UKUT 349 (TCC) |
| Date | 28 July 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Greg Sinfield, Judge Sarah Falk
Michael Firth, counsel, instructed by Kent & Sussex Accountancy Services, appeared for the appellant
Kate Balmer, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Appeal against closure notice disallowing certain losses – Loss relief – Whether growing asparagus for sale is farming or market gardening – If market gardening, whether horse breeding and asparagus business single composite trade – Decision of First-tier Tribunal set aside and case remitted – Income Tax Act 2007 (“ITA 2007”), s. 64, 66, 996 – Income Tax (Trading and Other Income) Act 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 taxpayer's asparagus growing business was farming or market gardening. Consequently the FTT's conclusion that the taxpayer's equestrian activity and asparagus trade were a single trade, and viewed as such, not carried on on a commercial basis, which lead to the loss claim being disallowed, could not stand.
The appellant (Mrs Thorne) included a loss in her 2008–09 tax return for her trade as an “Equestrian breeder and farming”, and claimed sideways loss relief under the Income Tax Act 2007 (“ITA 2007”), s. 64. HMRC disallowed Mrs Thorne's loss relief claim on the basis that the equestrian activity and the asparagus business were a single composite trade and, viewed as such, the trade was not commercial under ITA 2007, s. 66. HMRC also relied on the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA 2005”), s. 9(2) which provides that all farming carried on by a person in the UK is treated as a single trade. Mrs Thorne appealed to the FTT.
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, viewed in isolation, had been run on a commercial basis with a view to the realisation of profits the equestrian breeding was not. The FTT therefore dismissed Mrs Thorne's appeal.
Mrs Thorne appealed to the UT on the ground that the FTT erred in concluding that the equestrian activity and the asparagus business were a single composite trade. Mrs Thorne asked the UT to allow her loss to the extent that it related to the asparagus business.
It was not disputed that the FTT had applied the wrong test for determining whether Mrs Thorne's equestrian activity and asparagus business were a single trade. The test was not whether the taxpayer had submitted a composite return or made an amalgamated claim for loss relief, but the test found in Scales v George Thompson & Co Ltd TAX(1927) 13 TC 83 and subsequent cases (which required a consideration of the nature of the activities and how they interrelated).
The UT found that it was an error of law for the FTT not to decide whether the taxpayer's asparagus growing business was farming or market gardening and therefore the FTT's conclusion that the taxpayer's equestrian activity and asparagus trade was a single trade could not stand.
The UT found that these two questions had to be answered in order to decide the appeal: (1) was the asparagus business market gardening? and (2) if the asparagus business was market gardening, were the equestrian activity and asparagus business nevertheless a single, composite trade as a matter of fact?
The UT considered that it did not have sufficient information about some of the relevant factors to decide whether the land on which the asparagus was grown was a garden, and therefore whether the asparagus business was farming or market gardening. The UT decided that it needed more information, such as: the extent to which the land used for growing the asparagus was separate and distinct from the other land; an understanding of the methods of cultivation used to grow the asparagus; and also possibly some understanding of asparagus growing generally. The UT accordingly remitted the case to the FTT to consider afresh whether the land on which the asparagus was grown was a garden and thus the asparagus business was market gardening or farming.
Given the UT's decision on the first question, it did not decide the second question, but noted that if the asparagus growing was farming then the question would be determined by the application of ITTOIA 2005, s. 9 and if the asparagus growing was market gardening, the question was a question of fact not law as made clear in Scales.
Mrs Thorne's appeal against the FTT's decision was allowed and the case remitted to a differently constituted FTT.
The UT provided the following (summarised) list of factors or characteristics relevant in determining whether land is occupied as a farm or market garden for the purposes of ITA 2007, s. 996, although it also noted that other factors may be relevant in some circumstances.
1) A garden must be a distinct and defined area.
2) There must be a unity to the garden.
3) An area used as a garden must have a degree of permanence and continuity of function.
4) The methods of cultivation, i.e. labour, equipment and techniques, used on the land must be consistent with market gardening as distinct from farming.
5) Scale is of some relevance.
6) The produce grown on the land is a factor but is not usually of significant weight.
7) It may be relevant to look at the history of the use of the land.
[1] This appeal concerns a claim by the Appellant (“Mrs Thorne”) for “sideways” loss relief under section 64 of the Income Tax Act 2007 (“ITA”) which she claimed on her 2008–09 self-assessment return in respect of trading described as “Equestrian breeder & Farming”. The activities included in that description were breeding and rearing of event horses with a view to selling them (“the equestrian activity”) and growing and selling asparagus (“the asparagus business”). The Respondents (“HMRC”) refused the claim on the basis that the equestrian activity and the asparagus business were a single composite trade and, viewed as such, it was not carried on in 2008–09 on a commercial basis with a view to the realisation of profits. HMRC issued a closure notice disallowing Mrs Thorne's claim for losses arising in the tax year 2008–09. Mrs Thorne appealed to the First-tier Tribunal (“the FTT”).
[2] In a decision released on 30 July 2014, [2014] TC 03851, (“the Decision”), the FTT (Judge Alison McKenna and Ms Gill Hunter) held that the equestrian activity and asparagus business were a single, composite trade because Mrs Thorne had submitted a composite tax return in which she made an amalgamated claim for tax relief in respect of both activities. Considering the two activities together, the FTT found that the composite trade was not operated on a commercial basis or with a view to the realisation of profits. For those reasons, the FTT concluded that the restriction in section 66 ITA applied and sideways loss relief was not available. Save as otherwise indicated, paragraph references in square brackets in this decision are to the paragraphs in the Decision.
[3] Mrs Thorne now appeals, with the permission of the Upper Tribunal, against the Decision on the ground that the FTT erred in concluding that the equestrian activity and the asparagus business were a single composite trade. Mrs Thorne contends that the FTT should have found that the equestrian activity and the asparagus business were separate trades and that she was entitled to deduct the losses relating to the asparagus business from her general income. For the reasons given below, we allow the appeal, set aside the Decision and direct that the case be remitted to a differently constituted First-tier Tribunal.
[4] There is no challenge to the findings of fact by the FTT in this case. The facts are set out principally at [7] to [17] of the Decision. There were no witness statements, as such, before the FTT but Mrs Thorne's evidence was incorporated in a document entitled “Summary of the case for the Appellant” which contained an indiscriminate mix of facts and submissions. It is clear that the FTT's findings of fact were based on HMRC's statement of case, the written summary of Mrs Thorne's case and her evidence to the FTT at the hearing. At the hearing before us, Ms Balmer accepted and relied on some of the facts in Mrs Thorne's summary which we have included in our description of the material facts below.
[5] Yew Tree Farm consists of a farmhouse, outbuildings and 38 acres of land. Mrs Thorne has lived there since December 1995. Mrs Thorne has always used much of the land as pasture for her horses. At some point before April 2004, Mrs Thorne carried out a substantial amount of work on the outbuildings to turn them into stables, a feed room, a tack room and foaling boxes. In April 2004, Mrs Thorne started to trade as a horse breeder. This was her evidence as recorded in [9] and it appears to have been accepted by the FTT although HMRC had submitted that Mrs Thorne had been trading since she occupied Yew Tree Farm in December 1995.
[6] In 2008, Mrs Thorne embarked on a new venture of growing asparagus for sale. At some point before 6 April 2009, Mrs Thorne incurred expenditure of £33,270 on equipment, including a tractor, solely for use in relation to asparagus growing. In April 2009, five and a half acres of land at Yew Tree Farm were dedicated to growing asparagus. Mrs Thorne purchased 250,000 asparagus crowns and planted four acres of asparagus in...
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Judith Thorne v The Commissioners for HM Revenue and Customs
...[2016] UKUT 0349 (TCC) Appeal number: UT/2015/0030 INCOME TAX – appeal against closure notice disallowing certain losses – loss relief – section 66 Income Tax Act 2007 – whether growing asparagus for sale is farming or market gardening – if market gardening, whether horse breeding and aspar......