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 31.12.98 | Loss £3700 |
| Year ended 31.12.99 | Loss £1100 |
| Year ended 31.12.00 | Loss £4800 |
| Year ended 31.12.01 | Loss £7000 |
| Year ended 31.12.02 | Loss £2600 |
| Year ended 31.12.03 | Profit £1200 |
| Year ended 31.12.04 | Loss £4400 |
| Year ended 31.12.05 | Loss £5300 |
Marjorie claims loss relief under ICTA88/S380 (1) for
2004-05. At first sight it may appear that Section 397 does not
apply as she made a profit in the year ended 31 December 2003. A
different picture emerges however when profits or losses are
computed by reference to years of assessment -
| 1999-2000 | (9/12 x L £1100 = L £825) + (3/12 x L £4800 = L £1200) | = Loss £2025 |
| 2000-01 | (9/12 x L £4800 = L £3600) + (3/12 x L £7000 = L £1750) | = Loss £5350 |
| 2001-02 | (9/12 x L £7000 = L £5250) + (3/12 x L £2600 = L £650) | = Loss £5900 |
| 2002-03 | (9/12 x L £2600 = L £1950) + (3/12 x P £1200 = P £300) | = Loss £1650 |
| 2003-04 | (9/12 x P £1200 = P £900) + (3/12 x L £4400 = L £1100) | = Loss £200 |
| 2004-05 | (9/12 x L £4400 = L £3300) + (3/12 x L £5300 = L £1325) | = Loss £4625 |
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 397 therefore applies and the loss incurred
in 2004-05 of £4400 is not available for relief under Section
380.
