BIM75601 - Farming losses: general

Farmers do not control the two main factors affecting the results of their businesses; market prices and the weather. These and other factors (for example, the 2001 outbreak of foot and mouth disease) may cause even the most efficiently managed farms to show losses from time to time. Various forms of loss relief are available to help in such cases (see BIM75000 onwards). In a minority of cases, claims for tax relief in respect of farming losses can present particular difficulty because:

• All UK farming is treated as the carrying on of a trade by virtue of ICTA88/S53 (1) and ITTOIA/S9 - and is thus eligible for the loss relief provisions applying to trades - whether or not it meets the normal commercial criteria of trading (see BIM55110).
• People with income from other sources sometimes take up farming for the sake of recreation or the lifestyle or status which it offers rather than for genuinely commercial reasons.

Because of this, Parliament has enacted rules which prevent some farming losses being offset against non-farming income.

Restrictions to relief under ITA2007/S64 (previously ICTA88/S380)

Where losses are sustained in farming activities of an essentially uncommercial nature, relief under ITA2007/S64 may fall to be restricted under either:

• ITA2007/S66 - which restricts relief (see BIM75605) where the trade was not run on a commercial basis and with a view to the realisation of commercial profits (see BIM75615 and BIM75201), or
• ITA2007/S67 - often known as the five year rule restricts relief (see BIM75605) where tax adjusted losses before capital allowances were incurred in each of the five previous years of assessment (see BIM75620 onwards). ICTA88/S397 operates in the same way for CT purposes.

is the five year rule is generally more straightforward to use as it involves a mechanical test. It should be applied, subject to BIM75640 and BIM75645, in all cases where the conditions (see BIM75620 onwards) are satisfied. Cases where Section 67 does not apply, but where the activities appear clearly uncommercial, should be considered for challenge under Section 66, subject to BIM75615 and BIM75201 onwards.

Restriction to relief under ITA2007/S72ICTA88/S381

Where relief by way of carry back in respect of losses sustained in the commencing years of a trade is claimed under ITA2007/S72 the test of commerciality is provided by Section 74. This test is stricter than that of Section 66 (see BIM75450).

Companies

As regards companies within the charge to CT, see CTM04000 onwards.