Part 4 Loss relief

Chapter 2 Trade losses

Restrictions on relief: farming or market gardening

49 Reasonable expectation of profit
(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.