The latest appeal concerns a claim by Judith Thorne for ‘sideways’ loss relief under section 64 of the Income Tax Act 2007 (ITA) which she claimed on her 2008-09 self-assessment return in respect of trading described as ‘equestrian breeder and farming’. This covered the breeding and rearing of event horses with a view to selling them, and growing and selling asparagus. [Judith Thorne and the Commissioners for Her Majesty’s Revenue and Customs, [2016] UKUT 0349].

HMRC had refused her claim on the basis that the equestrian activity and the asparagus business were a single composite trade and, viewed as such, it was not carried on in 2008-09 on a commercial basis with a view to the realisation of profits. HMRC issued a closure notice disallowing Thorne’s claim for losses of around £32,000 arising in the tax year 2008-09.

Thorne then appealed to the First Tier Tribunal (FTT), which found in HMRC’s favour, arguing that there was a single, composite trade and that she had submitted a composite tax return. Considering the two activities together, the tribunal found that these were not operated on a commercial basis or with a view to the realisation of profits so sideways loss relief was not available.

At the Upper Tribunal, Thorne sought to argue that the FTT had erred and should have found that the equestrian activity and the asparagus business were separate trades and that she was entitled to deduct the losses relating to the asparagus business from her general income.

In her appeal, Thorne also asked the Upper Tribunal to allow her loss to the extent that it related to her asparagus business, which she estimated to be around 70% of the loss claimed. Her argument hinged on the belief that the asparagus growing fell under the heading of market gardening for tax purposes and should be treated differently from the equestrian activity, which was classed as farming under the ITA rules.

In its decision, the Upper Tribunal decided that the FTT’s failure to consider and reach a conclusion on the question of whether the asparagus business was farming or market gardening was an error of law. However, despite the Upper Tribunal’s own attempts to consider the question by looking at the factors or characteristics which could determine whether land was used as a farm or a market garden, it was unable to reach a conclusion.

The tribunal said it needed to have more information on a range of factors, including the extent to which the land used for growing the asparagus was separate and distinct from the other land, for example whether there was a rabbit-proof fence which marked the division. The Upper Tribunal also wanted more detail about the methods of cultivation used to grow the asparagus, such the use of the tractor and other machinery Thorne had purchased and also the level of skill required to grow and harvest the asparagus.

For these reasons, the Upper Tribunal concluded the case should be remitted to the FTT to consider afresh whether the land on which the asparagus was grown was a garden and thus the asparagus business was market gardening or farming, and to determine on the facts, whether there was a single, composite trade. However, it also said this should be a differently constituted FTT, as the original tribunal had focused more on the equestrian business than the asparagus growing.

Sharon Omer-Kaye, head of rural services at RSM said: ‘This case is a further example of the tax complexities facing rural businesses and the outcome could have important implications for many in the sector.’

Judith Thorne and the Commissioners for Her Majesty’s Revenue and Customs, [2016] UKUT 0349 is here.