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This guidance note sets out the specific tax rules which determine whether a farm enterprise is treated as a commercial business or a hobby activity. One rule looks at the commercial basis of the farm and the other reviews situations where the farming activity has incurred losses for several successive years. The impact of being treated as a hobby farm is to restrict the use of losses. They prevent farming trade losses from being relieved against other income (or in some cases capital gains) of the same, or previous tax year, commonly referred to as sideways loss relief. The rules apply for both unincorporated businesses and companies.

The legislation is set out in ITA 2007, ss 66–70 and CTA 2010, ss 44, 48–49 and HMRC guidance is at BIM85615, CTM04710 and CTM04600.

Further details can be found in Simon’s Taxes B5.175 and Stanley: Taxation of Farmers and Landowners, 2.93.

General commentary on losses can be found in the following guidance notes:

1. •

   Sole trader losses ― established trades

2. •

   Sole trader loss relief