In an encouraging case for the agricultural industry, a determined organic farmer has been granted the right to set off more than £1.4 million in losses, suffered over a five-year period, against tax due on profits he made in subsequent years. With the help of legal advisers, he achieved a tax saving of almost £600,000.
The farmer bought a 75-acre farm in 1995 and consistently made losses over the following 17 years. He lost £1,464,324 in the five tax years from 2008 to 2012, in part because of the financial crisis. However, by expanding the farm’s landholdings to over 400 acres and by specialising in organic produce and in selling directly to the public, he turned the business around and it had been profitable since 2012.
He had other business interests and had continued to pay farm workers generously throughout the loss-making period. Although he never lived on the farm, he denied that he was a hobby farmer and insisted that he had been focused on making a profit throughout. HM Revenue and Customs (HMRC), however, refused to grant him so-called sideways relief in respect of the losses made during the five-year period.
In upholding his appeal against that decision, the First-tier Tribunal (FTT) found that he met the tests in respect of sideways relief contained within Sections 67 and 68 of the Income Tax Act 2007. He had at all times acted as a hypothetical competent farmer would have done and had a reasonable expectation that profits would eventually be achieved. The FTT’s ruling yielded a tax saving to the farmer of £597,140.
