Losses suffered in trade can generally be set off against Income Tax liabilities, but the trade concerned has to be genuinely commercial and carried on with a view to profit. A tribunal made that point in a case concerning a sporting venture that resulted in losses of over £30 million.
The venture had been pursued by a limited liability partnership that was backed by a successful entrepreneur. He had invested heavily in the attempt to win a sought-after trophy and had suffered very substantial personal losses. HMRC, however, refused to allow a set-off on the basis that his involvement in the venture was principally motivated by his desire to win the trophy, rather than by profit.
The man argued that he had seen the venture as an entrepreneurial challenge and that turning a profit had been realistic and achievable. Familiar with taking big risks for commensurately big rewards, he had obtained as much commercial sponsorship as possible and had tried to keep costs down. HM Revenue and Customs (HMRC), however, argued that he was mainly driven by a personal ambition to win the trophy and that any profit generated would have been viewed simply as a bonus.
Ruling in HMRC’s favour on that issue, the First-tier Tribunal found that, as much as by profit, the man had been motivated by the prestige that would result from a sporting triumph that was his primary objective. The partnership itself would receive a tax advantage after the FTT upheld its appeal against HMRC’s ruling that it was not engaged in trade.