Erridge, attacks on farm losses, and reasonable expectation
It is interesting to note that HMRC are relentless in their attempts to try to deny farming and equine sideways loss relief, especially where it is difficult to prove an expectation of profits as shown by the recent case of N Erridge (TC4294).
This case highlights the need for all tax advisers to, “sanity check” every tax loss before it is submitted to HMRC. There is a need to pay particular attention to the “loss memorandum" ie, the records of loss claims mindful of the need for justification and the detail around “hobby farming” rules. Farm tax is complicated and the loss rules are an example of this.
Mr Erridge was a full-time dentist and claimed to set the farming tax losses against his other income after a history of losses. HMRC refused the claim on the grounds that sideways loss relief was not available because ITA 2007, s 68(3)(b) (reasonable expectation test) had not been satisfied. The taxpayer appealed against the HMRC decision and the debate led all the way to Tribunal.