A recent case (J. Thorne) found in favour of HMRC, so denying a taxpayer’s claim for loss relief.  This was on the grounds that the taxpayer’s loss making business was uncommercial.  The business was described as horse breeding and farming on the Self-Assessment Return, with integrated accounts.
With a first reading of the case it is hard to be unsympathetic to the technical issues raised by HMRC.  In terms of breeding, at much of the key time there were 3 horses in the business, a gelding, a mare over breeding age and an unproven filly.
I suspect many people may query how each of these fitted into  a business model for a breeding programme (as opposed to an interesting hobby or ‘dilettante venture’ as the case puts it).  Hence, ‘uncommercial’ does not seem too much of a surprise as a conclusion.
A second reading though raises questions of whether things could have been improved by better planning.

  1. The ‘farming’ element incorporated what seemed to be a separate strand of business, that of growing asparagus.  This made a loss, because of the slow growth and development of asparagus plants, but it seems to have been acknowledged this element of the loss was commercial.  By that time, it was too late for the taxpayer though, because the question before the Tribunal was based on the integrated claim, showing a single set of loss making results.


  1. Could more have been made of the point that whilst S9 ITTOIA 2005 refers to all farming in the UK by a person representing a single trade, this does not automatically bring in hobby elements, and horse breeding and equestrian events are obviously radically different in nature to growing asparagus.  The Tribunal actually suggests that they may be treated separately in future returns.


  1. The Tribunal found that the fact that asparagus represents a long term crop does not preclude early losses from qualifying as ‘commercial’, available to be offset against general income.  When added to another loss making business strand though it just detracts further from the prospect of commercial profit.  The case evidence though seems to focus on the equestrian side, rather than the asparagus farm.

Of course, if they had won everything then the client would have been happy.  Accountancy advice though is not just about adding up figures, it is thinking what the numbers are to be used for and then working out the most meaningful way of presenting them.

In recent cases there has been a wide ranging application of the definition of “wholly and exclusively for the purposes of trade”, which is the general test for deductibility of expenses.
Two recent examples of this are Mclaren Racing Ltd v HM Revenue & Customs and Interfish v HM Revenue & Customs.
In the case of Mclaren Racing Ltd, the fine relating to the spying of Ferrari amounting to £34m was deemed to be deductible by a first tier tribunal. This was because the act (which was fined) was wholly and exclusively for the purposes of trade and no laws were broken.
Whereas in the case of Interfish Ltd v HM Revenue & Customs the first tier tribunal deemed that sponsorship to a local rugby club was not incurred wholly and exclusively for the purpose of trade. This was because one of the reasons why the company sponsored Plymouth rugby club was to help the club to buy players, and therefore the sponsorship had a dual purpose.
These two cases could suggest to general taxpayers that there is a disparity between how the wholly and exclusively is applied on a case by case basis, although it should be noted that the points at question were quite different to each other.