Farmers who fall on hard times are entitled, for tax purposes, to set off their losses against other sources of income if they are lucky enough to have them. However, a tribunal case concerning a sheep farmer who sustained continuous losses for a decade has underlined that the concession is not endless.
As a result of low sheep prices and various unforeseeable events – including two episodes of sheep rustling, a foot and mouth outbreak and invasion of pasture by wild boars – the farmer suffered losses over a 10-year period which totalled almost £150,000. He had also enjoyed a distinguished business career, generating a pension income against which he sought to set off his farming losses.
HM Revenue and Customs (HMRC) agreed that he was entitled to set offs in respect of his first five years of losses. However, it was submitted that that relief was not available to him in two subsequent years. Citing Section 67 of the Income Tax Act 2007, HMRC argued that, during those years, he had carried on the farming enterprise without reasonable expectation of profit.
The First-tier Tribunal was in no doubt that the man was a highly experienced sheep farmer for whom agriculture was more than a hobby. He had been intent on turning the farm around and running it as a profitable, commercial business. However, in dismissing his appeal, it found that a hypothetical competent farmer could not reasonably have expected the farm to become profitable during the relevant period.