A recent First Tier Tribunal case, Charlotte MacDonald v HMRC, has highlighted the importance of demonstrating that a trade is carried on with a genuine intention to make a profit. The taxpayer was denied sideways loss relief for losses arising from the organisation of an annual ‘woodland shoot’ on an estate.
Background to the case
The taxpayer had been running an annual shoot for several years and sought to offset trading losses against her general income under the sideways loss relief rules. HMRC challenged the claim on the grounds that the activity was not being carried on with a view to the realisation of profits.
What the rules say
A taxpayer can claim sideways loss relief to offset trading losses against their general income in the year of the loss, the previous year, or both. However, the relief is only available if the loss arises from a trade that is carried on:
Both conditions must be satisfied for the claim to succeed.
The Tribunal’s findings
The Tribunal agreed with the taxpayer that the shoot was operated on a commercial basis. It was not merely a hobby, and there was clear evidence that the activity was run with some level of commercial intent.
However, the Tribunal also found that the shoot had made losses in almost every year since it began, with only one year of minimal profit over a 15-year period. There was no reasonable prospect that the trade would ever become profitable.
Because the activity was not carried on with a view to the realisation of profits, the conditions for sideways loss relief were not met, and the appeal was dismissed.
What this means for taxpayers
This case is a useful reminder that HMRC will closely scrutinise any sideways loss relief claims. It’s not enough for an activity to be commercial in nature — there must also be a realistic expectation of profit.
If you operate a small trade or side venture that has been making losses, it’s important to keep detailed records and ensure there is a clear plan to make the business profitable.
At A&C Chartered Accountants, we can review your trading position and help determine whether a sideways loss relief claim is appropriate. If you’re unsure about your eligibility or want to avoid the risk of a dispute with HMRC, get in touch with our team for tailored advice.