Farmers have a tough time selling produce at prices set by mega supermarkets, while simultaneously coping with extreme weather conditions. But the tax law still expects farms to make a profit.
Where your business is farming or market gardening, and you make a loss for more than five consecutive years, the losses for the sixth and subsequent years are denied sideways loss relief. This means you can’t set those losses against your other income in the same tax year (if you have any). The farming loss can only be carried forward to set against future farming profits.
If you claim the sideways loss relief irrespective of this five year rule, you run the risk of a tax investigation, interest and penalties. It may be some years down the line that HMRC decide to review all of your losses, and retrospectively deny relief.
Simply not claiming the sideways loss relief in the fifth year will not work. You need to break the pattern of losses with a profit, even a very small one, at least every five years.
You can also argue that, as a competent farmer, you would have had a reasonable expectation of making a profit on your farm, at the start of your run of losses. Thus, it can be shown that you did set out to make a profit, but simply suffered from unusual conditions.
We can help you defend your legitimate farming losses against a challenge from HMRC.