BIM75630 - Farming losses: loss considered is loss incurred in year to 5 April


In determining for the purpose of the five year test whether a loss was incurred in any particular year of assessment, the period to be taken is the year to 5 April. Where accounts are made up to a date other than 5 April, it may therefore be necessary to apportion the results of different accounting periods.

Example

Marjorie Brown trading as a farmer of long standing makes up her accounts annually to 31 December. Her results were as follows:-


 

Case I profit or loss before capital allowances

Year ended 31.12.01

Loss £3700

Year ended 31.12.02

Loss £1100

Year ended 31.12.03

Loss £4800

Year ended 31.12.04

Loss £7000

Year ended 31.12.05

Loss £2600

Year ended 31.12.06

Profit £1200

Year ended 31.12.07

Loss £4400

Year ended 31.12.08

Loss £5300


Marjorie claims loss relief under ITA2007/S64(2)(a) for 2007-08. At first sight it may appear that Section 67 does not apply as she made a profit in the year ended 31 December 2006. A different picture emerges however when profits or losses are computed by reference to years of assessment -


2002-03

(270/365 x L £1100 = L £814) + (95/365 x L £4800 = L £1249)

= Loss £2063

2003-04

(270/365 x L £4800 = L £3551) + (96/366 x L £7000 = L £1836)

= Loss £5387

2004-05

(270/365 x L £7000 = L £5164) + (95/365 x L £2600 = L £677)

= Loss £5841

2005-06

(270/365 x L £2600 = L £1923) + (95/365 x P £1200 = P £312)

= Loss £1611

2006-07

(270/365 x P £1200 = P £888) + (95/365 x L £4400 = L £1145)

= Loss £257

2007-08

(270/365 x L £4400 = L £3255) + (96/366 x L £5300 = L £1390)

= Loss £4645


We can now see that she made a trading loss, computed without regard to capital allowances, in each of the five preceding years of assessment. Section 67 therefore applies and the loss incurred in 2007-08 of £4400 is not available for relief under Section 64.