A recent case before the Tax Tribunal reminds us that HMRC has set that in order to set a trading loss sideways against other income, the business must be commercial one with the intention to make profit against general income.
The case in question relates to Ms Thorne, who ran an equestrian business and another business growing asparagus. HMRC has disputes on whether the trade had been carried out on a commercial basis with a view to the realisation of profits. The self-employment pages of her tax return showed a single composite business, which incurred an overall trading loss. The equestrian business was unlikely to make a profit and was clearly a hobby. However, the asparagus business was in its early stages; it is widely accepted that it can take up to three years before a significant crop is produced. Had separate accounts been prepared for the asparagus business, loss relief would likely have been available, as it could be argued that the venture was being carried out on a commercial basis with a view to making a profit.
Check this Working sheet from HMRC Losses HelpSheet
If your business makes losses in the first few years, we can help to ensure the availability of relief by helping you prepare forecasts and a business plan, demonstrating that the business is being carried out on a commercial basis with a view to making a profit.
If you have made a loss in your business/trade or are entitled to a share of the loss made by a partnership of which you are a member, check this HMRC Losses HelpSheet for more details
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