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 31.12.98Loss £3700
Year ended 31.12.99Loss £1100
Year ended 31.12.00Loss £4800
Year ended 31.12.01Loss £7000
Year ended 31.12.02Loss £2600
Year ended 31.12.03Profit £1200
Year ended 31.12.04Loss £4400
Year ended 31.12.05Loss £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.