The Need To Prove Commerciality
Submit Articles Back to Articles
24 June 2014
Tribunal case has examined the question of commerciality and losses, R
Murray (TC3474) with a focus on stud
farming and racing.
current enthusiasm shown by HMRC to look closely at equine activities,
losses, it is not in the least surprising that the eligibility of tax
a trading loss claim has been taken all the way to Tribunal.
In order to
claim tax relief on trading losses the business must be trading on a
basis with a view to making a profit (ITA 2007, s 66). The taxpayer has
able to prove that there is a reasonable expectation of profit from the
for cumulative losses
was a racehorse breeder and trainer. Mr Murray began the business in
did not notify HMRC until he submitted his 2007/08 tax return. In the
for that year, he claimed cumulative losses of £51,378. The taxpayer
further losses totalling £81,406 for the tax years 2008/09, 2009/10 and
The problems with both racehorse breeding and racehorse training is
are high infrastructure costs, ie running costs, and the ability to
targets for sales can be problematic.
First-tier Tribunal noted that the taxpayer had assumed that his
training activities would be sustainable if the tax relief losses were
allowable. HMRC enquired into the taxpayer’s 2010/11 return and decided
losses were not allowable because he was not trading on a commercial
a view to making a profit (ITA 2007, s 66).
close attention to loss claims
There is a basic
understanding in the equine world that claims for tax losses are being
into by HMRC due to their eligibility to be offset against total
income. In the
equine world there are large trading losses being recorded and in order
achieve tax relief they need justification due to the lack of apparent
within the operation. It is a fair assumption that all tax losses for
equine industry will be under scrutiny by HMRC and it is key in order
to protect the tax loss claims that
plans to show that a profit can be achieved under the current structure
business plans responding to the actual trading results
showing a profit for the operation
In the Murray case the judge considered
although there may have been a reasonable expectation of profit at the
the taxpayer’s business, by 2010/11 the economic downturn, together
high running costs and consistent losses, led to no hope of profit. The
any income supported the concerns of any chance of profit and proof of
commerciality. Although sympathetic to the taxpayer’s predicament, the
considered that the business was not commercial and therefore the
not allowable. The taxpayer lost the case and did not achieve tax
relief on the
submitting loss claims on behalf of all clients must ask objective
regard to potential profit and not just accept the results and the
There must be strong work around the potential defence of all loss
evidence to support the chance of future profit.
About the Author
Supplied by Julie Butler F.C.A.
Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email;
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2014-08-06 09:01:33 in Tax Articles