BIM75645 - Farming losses: let-out where farming part of larger undertaking
ITA2007/S67(3)a provides that relief is not to be denied where the loss-making farm or market garden is part of, and ancillary to, a larger trading undertaking. The subsection is designed to meet cases such as that of a butcher who makes a practice of fattening bullocks for his business, or a manufacturer who grows his own raw materials, or a seedsman or chemical manufacturer who runs a farm for testing or improving his products. Many farmers in current times will have diversified and this may give rise to claims for extended loss claims by virtue of being ancillary to and part of a larger undertaking. Such claims will need to be carefully examined and are unlikely to succeed unless the diversified activity has become the major part of the business and the original farming activity now supports and serves in an functional way the new diversified operation. For example if a working farm has been converted into a tourist attraction where the existence of farm animals including perhaps some exotic creatures is an integral part of the attraction. Tourist income (gate receipts, shop and café sales etc) is likely to exceed traditional farm receipts and farm labour is now more directed towards looking after the customer and enhancing the customer experience rather than maximising agricultural efficiency.
The phrase, `part of, and ancillary to' should be interpreted strictly. `Ancillary' means `subservient and annexed to' does not simply mean part of the business. It implies a close operating link with and contribution to the larger undertaking. (see Croom-Johnson J in Cross v Emery [1949] 31TC198).
A review of the case law will show that these cases will turn on their own facts and it is suggested that useful areas to examine in this context are:
- The method by which the holding as a whole is run.
- The purpose of the operation.
- The strength of the links between the two.
- The contribution one makes to the other.
A very useful and more recent analysis on the meaning of ancillary can be found in the IHT case of Williams (Personal Representative of Williams deceased) v HMRC (SpC500) by Special Commissioner Charles Hellier.
