In Bryan Scambler & Rebecca Scambler v HMRC [2017] UKUT 001 the Upper Tribunal (UT) denied sideways loss relief for dairy farmers who had made losses for over five years.

Where a farming or market gardening business makes losses for five years in a row, sideways loss relief is not available in the sixth year unless the ‘reasonable expectation of profits’ test it met.  This requires that a competent person carrying on the activities:

  • Would reasonably expect future profits, but
  • Would not, at the start of the loss making period five years ago, have reasonably expected profits until after the current period.

The taxpayers ran a dairy farm, which was loss making for six years due to the low price of milk.

The First Tier Tribunal (FTT) agreed with HMRC that no sideways loss relief claim could be made in the sixth year as the taxpayers would not, at the start of the loss making period, have had a reasonable expectation that no profits would occur for the next five years. 

The UT has now confirmed this:

  • The reference to ‘hobby farming’ in the heading of the legislation is irrelevant: it can also apply to commercial trades carried out full time.
  • The purpose of the legislation is that if farming activities are not expected to become profitable in the long term then the period of sideways loss relief should be limited.
  • You have to look at the nature of the activities carried out in the year of the loss, not those carried out five years earlier when the losses started.
  • The taxpayers needed to show a specific reason why profits would not be made for the loss period and the volatility of milk prices was not enough: these could just as easily go up as down.

The taxpayer’s appeal was therefore dismissed.


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Losses (sideways): restriction for uncommercial trades

Case reference: Bryan Scambler & Rebecca Scambler v HMRC [2017] UKUT 001