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HMRC internal manual

Business Income Manual

From
HM Revenue & Customs
Updated
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Measuring the profits (particular trades): Nurseries and market gardens: restrictions on loss relief

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

  • S66 Income Tax Act 2007 (ITA 2007) which denies relief against general income under S64 ITA 2007 where the trade was not run on a commercial basis and with a view to the realisation of profits (see BIM75015 and BIM85705);

or

  • S74 ITA 2007 which denies relief under S72 ITA 2007 (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 BIM85735);

or

  • S44 Corporation Tax Act 2010 (CTA 2010) which denies relief under S37 CTA 2010 (for losses incurred by companies) where the trade was not run on a commercial basis and with a view to the making of a profit or so as to afford a reasonable expectation of making a profit (see CTM04600 - CTM04620);

or

  • S67 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) which restricts relief under S64 ITA 2007 where losses were incurred in each of the five previous tax years (see BIM85620 - BIM85650);

or

  • S48 CTA 2010 which restricts relief under S37 CTA 2010 where losses were incurred in each of the five previous years (see CTM04710).

S66 ITA 2007 and S44 CTA 2010 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.

S74 ITA 2007 provides a stricter test of commerciality and should be considered in any case where relief is claimed under S72 ITA 2007 in respect of what appear to be essentially uncommercial activities.

S67 ITTOIA 2005 and S48 CTA 2010 are generally more straightforward as they involve an objective test. They apply, subject to BIM85640 - BIM85645, in all cases where the conditions (see BIM85620 onwards and CTM04710) are satisfied.