Modifications etc. (not altering text)
C1Pt. 4 modified (with effect in accordance with reg. 1(2) of the amending S.I.) by The Risk Transformation (Tax) Regulations 2017 (S.I. 2017/1271), regs. 1(1), 10
C2Pt. 4 excluded (14.7.2022) by Energy (Oil and Gas) Profits Levy Act 2022 (c. 40), s. 1(5)(e) (with ss. 15(1), 16(1))
(1)This section applies if a loss is made in a trade of farming or market gardening in an accounting period (“the current period”).
(2)Relief under section 37 is not available for the loss if a loss, calculated without regard to capital allowances, was made in the trade—
(a)in the current period, and
(b)in each accounting period falling wholly or partly within the period of 5 years (“the prior 5 years”) ending immediately before the current period begins.
(3)But this section does not prevent relief for the loss from being available if—
(a)the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking,
(b)the farming or market gardening activities meet the reasonable expectation of profit test (see section 49), or
(c)the trade was started, or treated as started, during the prior 5 years (see section 50).
(4)A loss in a trade is calculated without regard to capital allowances by ignoring—
(a)the allowances treated as expenses of the trade under CAA 2001, and
(b)the charges treated as receipts of the trade under CAA 2001.
(1)This section explains how the farming or market gardening activities (“the activities”) meet the reasonable expectation of profit test for the purposes of section 48(3)(b).
(2)The test is decided by reference to the expectations of a competent farmer or market gardener (a “competent person”) carrying on the activities.
(3)The test is met if—
(a)a competent person carrying on the activities in the year (“the current year”) after the prior 5 years would reasonably expect future profits (see subsection (4)), but
(b)a competent person carrying on the activities at the start of the prior period of loss (see subsection (5)) could not reasonably have expected the activities to become profitable until after the end of the current year.
(4)In determining whether a competent person carrying on the activities in the current year would reasonably expect future profits, regard must be had to—
(a)the nature of the whole of the activities, and
(b)the way in which the whole of the activities were carried on in the current year.
(5)“The prior period of loss” means—
(a)the prior 5 years, or
(b)if subsection (6) applies, the period made up of the successive accounting periods taken together as mentioned in that subsection.
(6)This subsection applies if—
(a)losses in the trade, calculated without regard to capital allowances (see section 48(4)), were made in successive accounting periods before the current year, and
(b)taken together those accounting periods amount to a period of more than 5 years ending at the end of the prior 5 years.
(1)For the purposes of section 48(3)(c) a trade is to be treated as ceased, and a new trade as started, in any of the following cases—
Case 1
A company starts or ceases to be within the charge to corporation tax in respect of a trade.
Case 2
There is a change in the persons carrying on a trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on.
Case 3
There is a change in the persons carrying on a trade and—
immediately before the change, the trade is carried on by persons who include a company, and
after the change, no company that carried on the trade in partnership immediately before the change continues to carry it on in partnership.
Case 4
There is a change in the persons carrying on a trade and—
immediately before the change, no company carries on the trade in partnership, and
immediately after the change, the trade is carried on in partnership by persons who include a company.
(2)Subsection (1) is subject to subsections (3) and (4).
(3)A trade is not to be treated as ceased if the change in the persons carrying on the trade is a transfer to which Chapter 1 of Part 22 applies (transfers of trade without a change of ownership).
(4)In determining if there is a change in the persons carrying on a trade, subsection (1) is subject to the following rules—
Rule 1
A husband and wife are treated as the same person.
Rule 2
Individuals who are civil partners of each other are treated as the same person.
Rule 3
A husband or wife is treated as the same person as—
a company of which either of them has control, or
a company of which both have control.
Rule 4
An individual's civil partner is treated as the same person as—
a company of which either of the civil partners has control, or
a company of which both have control.
(5)In subsection (4) “control” has the same meaning as in section 450.
(1)This section applies for the purposes of sections 48(2) and 49(6) if, as a result of section 50(4), a company is treated as the same person as an individual.
(2)A loss in an accounting period may be determined by reference to profits and losses made by the individual in the trade in tax years (within the meaning of the Income Tax Acts).
(3)For this purpose—
(a)profits and losses made by the individual in tax years may be allocated (in whole or in part) to accounting periods in a way that is just and reasonable, and
(b)if a tax year or part of a tax year is not covered by any accounting period—
(i)the period covered by the tax year or part may be treated as if it were an accounting period, and
(ii)in accordance with paragraph (a), profits and losses may be allocated to it.
(4)Section 70(2), (3)(a), (4)(a) and (5) of ITA 2007 applies for the purpose of determining the individual's profits and losses in the trade for tax years.