663 Corporation tax: restriction of relief for losses in farming or market gardening

Summary

This section applies to corporation tax a restriction on loss relief similar to that applied to income tax under section 662. It provides that relief in respect of farming or market gardening losses by way of set-off against other profits does not, broadly speaking, be granted where the farming or market gardening is not carried on on a commercial basis and with a view to the realisation of profits or where a loss was incurred in each of the 3 years preceding a given accounting period.

Details

Definitions

(1) “prior 3 years” means the 3 years before the year of loss.

“prior period of loss” means the prior 3 years or a longer period if losses were incurred in successive years over a greater period.

Treatment of losses

(2)(a) A farming or market gardening loss does not qualify for loss relief unless it is shown that, for the accounting period in which the loss was incurred, the farming or market gardening was being engaged in on a commercial basis and with a view to being profitable.

(2)(b) Loss relief is not given for a farming or market gardening loss in any accounting period if a loss (computed without regard to capital allowances) was incurred in that accounting period and in each accounting period wholly or partly within the prior 3 years. The rules of Schedule D, Case I, apply to establish if a loss has arisen in any tax year.

(2)(c) Where, exceptionally, the farmer or market gardener can point to activities which could reasonably be expected to produce a profit but might, nevertheless, find it difficult to maintain that the conditions in subsection (2)(a) were satisfied, it will be accepted that the trade was being carried on with a view to being profitable.

(2)(d) Relief may exceptionally be continued even where losses had been incurred for 3 years or more. This is designed to meet the genuine case of the farmer or market gardener who sets out on an undertaking realising that losses will be incurred for a substantial initial period but with a justifiable expectation of building up a profitable operation in the long run (for example, a farmer trying to regenerate marginal land over a long period).

(2)(e) The restriction on loss relief does not apply if the loss-making farm or market garden is part of and ancillary to a larger trading undertaking.

(4) Where a trade of farming or market gardening is carried on for only part of an accounting period, because the trade may have been commenced or discontinued within that period, the 3 year rule operates in relation to the trade for that part of that accounting period.

Trade commenced within 3 years preceding the year of claim

(3) The loss relief restriction does not apply where the trade was commenced in the 3 years preceding that year of claim. If any event is to be treated under the Tax Acts as equivalent to a discontinuance and setting up of a trade, for example, the sale of a farm by one person to another, the purchaser is treated as having commenced to trade on that date. This does not apply if, in relation to company reconstructions, the event is not to be treated as a discontinuance for the purpose of capital allowances and charges.

Anti-avoidance

(5) As an anti-avoidance measure to counter attempts to secure more than one run of 3 years, where a trade of farming or market gardening changes hands, the relieving provision of subsection (3) does not apply if the person carrying on the trade immediately before and immediately after the change are connected.

Relevant Date: Finance Act 2019