Tom Mountford writes on Judith Thorne v Revenue & Customs Commisioners [2016] UKUT 349



Judith Thorne v Revenue & Customs Commissioners [2016] UKUT 349 (TCC): Sideways loss relief under section 64 of the Income Tax Act 2007

In this recent case the Upper Tribunal Tax and Chancery Chamber considered an appeal by the taxpayer, Judith Thorne in respect of ‘sideways’ loss relief (trade loss relief against general income) under section 64 of the Income Tax Act 2007, that Ms Thorne had claimed on her 2008/09 tax return in respect of her breeding and rearing of horses for sale and growing of asparagus for sale. The issue on appeal was whether the First-tier Tribunal had erred in law in concluding that the taxpayer’s two business activities were a single, composite trade. In considering the appeal the tribunal set out factors that were relevant in determining, for income tax purposes, whether land was occupied as a farm or a market garden.


The definition of “farming” under section 996 of the Income Tax Act 2007 includes “the breeding and rearing of horses and the grazing of horses in connection with those activities”. Under section 9 of the Income Tax (Trading and Other Income) Act 2005 all farming, but not market gardening, carried on by a person in the UK is treated, for income tax purposes, as one trade. Ms Thorne’s case was that her asparagus growing business was “market gardening” for tax purposes. HMRC refused her claim on the basis that the two activities were a single composite trade. Ms Thorne appealed to the First-tier Tribunal who, in agreement with HMRC, held that the two activities were, based on the submission of a composite tax return and an amalgamated claim for tax relief, a single composite trade which was not operated on a commercial basis. Therefore section 66 of the Income Tax Act 2007, under which trade loss relief against general income is not available unless the trade is commercial, applied and sideways loss relief was not available.

Ms Thorne appealed arguing that the two activities were separate trades and that she was therefore permitted to deduct losses relating to the asparagus business from her general income.

The Appeal

On appeal it was accepted by both parties that the First-tier tribunal had applied the wrong test for determining whether Ms Thorne’s equestrian activity and asparagus business were a single trade. The correct approach was to be found in Scales (Inspector of Taxes) v George Thompson & Co Ltd (1927-28) 29 Ll. L. Rep. 176 and subsequent case law. In considering whether or not Ms Thorne had submitted a composite return or made an amalgamated claim for loss relief the First-tier tribunal had considered irrelevant factors. Further the Tribunal did not make any specific finding that the asparagus growing was market gardening and had not, save for brief reference to a submission that the asparagus growing was market gardening, considered whether the asparagus business was farming or market gardening. The FTT had therefore failed to consider relevant factors, the Upper Tribunal stating, “In our view, whether the asparagus business was farming or market gardening was a relevant matter and the failure to consider the question and reach a conclusion on it was an error of law”.

The Upper Tribunal set aside the FTT decision in accordance with its powers under section 12 of the Tribunals, Courts and Enforcement Act 2007 before going on to consider whether to remit the case to the FTT for reconsideration or re-make the decision itself. In doing so the Tribunal considered carefully the definition of farming under section 996 of the Income Tax Act 2007 and the test for determining whether land was occupied as a farm or as a market garden.

Under section 996(1) “farming” means the occupation of land wholly or mainly for the purposes of husbandry, but does not include market gardening. Under section 996(5) “market gardening” means the occupation of land as a garden or nursery for the purpose of growing produce for sale. The Upper Tribunal considered that the exclusion of market gardening from the definition of farming suggested that absent such exclusion, market gardening would constitute husbandry and therefore farming. To bring herself within section 996(5) Ms Thorne would need to have occupied the land as a garden or nursery for the purpose of growing asparagus for sale. It was not suggested that Ms Thorne grew the asparagus within a nursery and therefore whether or not her asparagus business fell within the definition of market gardening turned on whether the land on which the asparagus was grown was a “garden” for the purposes of s.996(5).

The Upper Tribunal went on to consider the factors relevant in determining whether land was occupied as a farm or as a market garden which included:

  1. A garden must be a distinct and defined area.
  2. There must be a unity to the garden.
  3. An area used as a garden must have a degree of permanence and continuity of function.
  4. The methods of cultivation, i.e. labour, equipment and techniques, used on the land must be consistent with market gardening as distinct from farming.
  5. Scale was of some relevance. More intensive methods associated with market gardening would be more likely to be carried out on a smaller scale.
  6. The produce grown on the land is a factor to be taken into account but is not usually of significant weight.
  7. It may also be relevant to look at the history of the use of the land. If land was previously in use as farm land, there will need to be evidence to establish when the land acquired the characteristics of a garden and that the change in use had the necessary degree of permanence described above.

The Upper Tribunal found, having considered Bomford v Osborne (Inspector of Taxes) [1942] A.C. 14, that the test for determining whether land was occupied as a farm or as a market garden was a multifactorial one, and no element was conclusive. On the facts, as found by the FTT, the Upper Tribunal was unable to decide whether Ms Thorne’s asparagus business was market gardening or farming. It therefore remitted the case to a differently constituted FTT to consider the question afresh and determine whether there was a single composite trade.


Following the stark warnings about the potential impact of Brexit on UK tax receipts in the run-up to the referendum and the continuing uncertainty over the decision to leave the EU on the UK economy it is unlikely that pressure on HMRC to increase (or now simply maintain) tax revenues will abate. HMRC will continue to scrutinise tax loss claims and the commerciality of trading before permitting businesses to obtain tax relief. This latest decision and the outcome of the FTTs reconsideration are likely to have important implications for rural businesses. The case highlights, once again, the need for business plans demonstrating commerciality and supporting the claim of future profits.

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