BIM62605 - Nurseries and market gardens: restrictions to loss relief

Where losses are sustained in market gardening activities of an essentially uncommercial nature, relief may fall to be restricted under:-

• ICTA88/S384 - which restricts relief under ICTA88/S380 where the trade was not run on a commercial basis and with a view to the realisation of profits (see BIM75615 and BIM75201);

or

• ICTA88/S381 (4) - which restricts relief under Section 381 (which provides for the carry back of losses sustained in the commencing years of a trade) where the trade was not run on a commercial basis and with a reasonable expectation of profits within a reasonable time (see BIM75450);

or

• ICTA88/S393A (3)(b) - which restricts relief under Section 393A (for losses incurred by companies) where the trade was not run on a commercial basis and with a view to the realisation of gain (see CTM04600 to CTM04620).

or

• ICTA88/S397 - which restricts relief under both Section 380 and Section 393A where losses were incurred in each of the five previous years, (see BIM75620 - BIM75650 and CTM04710).

Section 384 and Section 393A(3)(b) both involve a test of commerciality. They should be used in the more extreme cases - for instance, where it is alleged that a trade is conducted on a comparatively small area of land adjoining the proprietor's residence and where the total sales are so low by reference to the cost of labour and other expenses that there can be no likelihood of a profit ever being realised.

Section 381(4) provides a stricter test of commerciality and should be considered in any case where relief is claimed under Section 381 in respect of what appear to be essentially uncommercial activities.

Section 397 is generally more straightforward as it involves an objective test. It applies, subject to BIM75640 - BIM75645, in all cases where the conditions (see BIM75620 onwards) are satisfied.