HMRC has become very active in their scrutiny of tax loss claims that offset trading losses against total income. Key areas of attack by HMRC have proven to be farming and equine losses. Such an attack was highlighted by the Upper Tier Tribunal case of J Thorne v CRC (Upper Tribunal 349).
It is fair to say that if in a quiz the question was raised “which of the following is farming for tax purposes – breeding horses or growing asparagus?” the answer would probably be asparagus rather than breeding horses.
The recent Thorne case highlighted both HMRC’s enthusiasm to deny tax losses and the complexity of defining “farming”. The definition of “farming” under section 996 of the Income Tax Act 2007 includes “the breeding and rearing of horses and the grazing of horses in connection with those activities”.
Under section 996(1) “farming” means the occupation of land wholly or mainly for the purposes of husbandry but does not include “market gardening”. The question has to be asked: how is market gardening defined? Under section 996(5) market gardening is defined as the occupation of land as a garden or nursery for the purpose of growing produce for sale.
In the First-tier Tribunal (FTT) it was deemed that the breeding of horses was farming but the growing of asparagus was not as it was market gardening. The two businesses could not be treated as ONE trade under section 9 of the Income Tax (Trading and Other Income) Act 2005.
This issue was taken to another level by the Upper Tribunal who looked specifically at the difference between a farm and a market garden. It was decided in this context that:
- A garden must be a distinct and defined area.
- The method of cultivation used on the land must be consistent with market gardening, not farming
- Consideration should be given to scale, history and evidence to establish the characteristics of a garden.
The Upper Tribunal threw the matter back to the FTT to find out more facts and evidence on the nature of the asparagus growing to answer the question of whether the enterprise was farming or a market garden.
The clear practical action points arising from these tribunals are:
- Be prepared for HMRC attacking loss claim from a variety of angles.
- “Drill down” through the evidence to ensure the facts are all understood so the correct interpretation of s 996 is available when considering the eligibility of loss claims.
- The difference between what is farming and what constitutes market gardening can be a grey area that needs detailed research and evidence.
Julie Butler FCA, founding partner, Butler & Co,
(Article Published online at www.lawskills.co.uk)
Julie Butler F.C.A. qualified as a Chartered Accountant in 1980 and started Butler & Co in 1986. Julie is a farm and equine tax expert and is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).
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