In Ardeshir Naghshineh v HMRC [2022] EWCA Civ 19, the Court of Appeal dismissed a farmer’s sideways loss relief claims. The case should have failed for lack of evidence but in any event, based on the evidence which was available, the reasonable expectation of profit test was not met.

Where a farming business makes losses for five years in a row, Sideway Loss Relief is not available in the sixth or following years. An exception is when the ‘reasonable expectation of profits’ test at s.68 ITA 2007 is met. 

Mr Naghshineh purchased a farm as a conventional working agricultural farm in 1995.

The First Tier Tribunal (FTT) allowed the losses:

HMRC appealed to the Upper Tribunal (UT) who set aside the FTT decision, concluding that the FTT decision contained material errors in law.

The Court of Appeal dismissed the appeal. The case turned on the reasonable expectation of profit test and the purposive construction of s.68(3) ITA 2007, and specifically, subsection (b) which provides that the test is met if:

"(3)( a) a competent person carrying on the activities in the current tax year would reasonably expect future profits but

 (b) a competent person carrying on the activities at the beginning of the prior period of loss could not reasonably have expected the activities to become profitable until after the end of the current tax year."

A competent person is defined as a competent farmer or market gardener.

The ‘prior period of loss’ is defined as the five tax years before the current tax year. If losses, excluding capital allowances, were also made in successive tax years before those five tax years, the period comprising both those successive tax years and the five tax years before the current tax year, are included in the period calculation. In this case, it had already been agreed that the prior period commenced on 6 April 1994.

Useful guides on this topic

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

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

Farming: Overview
What is farming? What are the tax consequences and tax considerations of farming?  What are the features of agricultural tenancies?

Farmers: what expenses can I claim?
What expenses can farmers claim for tax purposes? Are there special tax and accounting rules for farmers? What are the rules for VAT for farmers?

External link

Ardeshir Naghshineh v HMRC [2022] EWCA Civ 19


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