Two dairy farmers in Devon have failed in their appeal to overturn the ruling of the First Tier Tax Tribunal (FTT) in April last year over amendments to their tax returns for 2010/11.
The amendments refused were to allow losses of £149,649 each claimed against capital gains tax and income tax for that year because of restrictions on sideways loss relief arising from the Hobby Farming rules.
The subsequent appeal to the Upper Tribunal was recently dismissed.
The FTT found in April last year that whilst profitability of Mr and Mrs Scambler's dairy farming business had been uncertain because of volatile milk prices in 2005, a competent farmer would not have had reasonable expectation that no profit would be made over the subsequent five years.
Mr and Mrs Scambler were relying on the concessions within the Hobby Farming rules for where there is a reasonable expectation of profits in the future, but which also require that, from the first year of losses to the date in question, a competent farmer could not have expected to make a profit.
'Ambiguity'
The Upper Tribunal acknowledged the ambiguity contained within these provisions regarding this test.
However, the Upper Tribunal stated: “We do not accept that the purpose of the legislation was to ensure that competent farmers doing everything they could within their control to address profitability were entitled to sideways loss relief indefinitely.”
The Upper Tribunal went on to say that unless there is something in the nature of the farming activities concerned that means that they cannot reasonably be expected to become profitable, except in the long-term, then the period of sideways loss relief should be limited by the normal time limits imposed by the Hobby Farming rules.
Peter Harker, a Director with Saffery Champness and a member of the firm’s Landed Estates and Rural Business Group says: “The FTT held in its previous ruling that HMRC was right that sideways loss relief could not be given in respect of dairy farming activities for the tax year ended 2010/11 and the Upper Tribunal has similarly now recently upheld that ruling.
“This serves to emphasise how important it is not to fall foul of the Hobby Farming provisions as the bar is set very high when trying to argue the Competent Farmer exemption which some people believe they will be able to rely on.”
