In Roulette V2 Charters LLP v HMRC [2019] TC07331 the First Tier tribunal refused sideways loss relief for a yacht charter business: the possibility that the business would make a profit was remote and initial profit expectations were wildly wrong.

Sideways loss relief allows trading losses to be offset against other income for the current tax year, the previous tax year, or both (s64 ITA 2007).

Sideways loss relief is only permitted for commercial trades (s66 ITA):

  • run on a commercial basis
  • with a view to the realisation of profits.

Roulette V2 Charters LLP was a yacht chartering business. It had two partners but for the periods in question 100% of the partnership losses were allocated to one partner, Mr Silver.

  • The LLP had one yacht which contributed to it by Mr Silver. For the periods ending 5 April 2009 to 5 April 2016 the LLP ran at a loss and Mr Silver had to contribute further capital to keep the business going.
  • Minutes of meetings of the LLP revealed that:
    • there was considerable focus on managing costs and obtaining additional charters by improving the website, printing brochures, and using the industry contacts of the yacht manager.
    • There had been discussions about the potential sale of the Yacht and purchase by the LLP of other yachts which might be more attractive as charter options.
  • Some of the charters undertaken of the yacht were to Mr Silver and his son.
  • For periods up to 2011 the yacht was not insured, then the insurance was for 12 charters per year only and was in Mr Silver’s name and not that of the LLP.
  • Mr Silver claimed sideways loss relief. HMRC refused the claims for the 2011/12 to 2015/16 tax years. 

The FTT believed Mr Silver when he said he had acquired the yacht for the sole purpose of carrying on the trade of chartering and not to use it for his own private purposes, but found there were some serious deficiencies and ineptitude in the way the LLP conducted the trade. As a result, the judge disallowed the losses:

  • Even on the most optimistic projections, the possibility the trade would generate a profit, once depreciation was properly taken into account (and Mr Silver had not done this), was remote, and a sensible businessman acting rationally should have realised that.
  • Considering the position for each period of account, as s66 requires, it was plain the initial expectations of Mr Silver and his partner as to the likely amount of charter income were ‘wildly wrong’ as the charter income in each of the previous periods of account was nowhere near the figures projected when the yacht was purchased.
  • Mr Silver had made a serious error in failing to insure the yacht for the earlier periods, limiting the insurance in the later periods and putting the insurance in his own name which the judge agreed was “amateurish conduct”.

Links to our useful guides:

Losses, trade losses and sideways relief
How can trade losses be utilised? What are the restrictions?

Losses (sideways): restriction for uncommercial trades
What are the restrictions to sideways loss relief? When do they apply? What is an uncommercial trade?

External link:

Roulette V2 Charters LLP v HMRC [2019] TC07331



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