BIM55190 - Farming: method of allowing spreading relief - HMRC internal manual - GOV.UK

S225ZA-S225ZG Income Tax (Trading and Other Income) Act 2005, S127A-S127G Corporation Tax Act 2009

Relief under the legislation (see BIM55180) should be allowed as follows:

Where an individual who is farming as a sole trader wishes to have the relief:

Where a trading loss is sustained in the basis period for any of those three following years, one third of the profit on compensation should be included in the computation so as to reduce

the loss or, as the case may be, create a profit.

The normal practice is modified where, due to the cessation of trading, there are less than three subsequent years of assessment over which to spread the profit. If the trade is permanently

discontinued:

In an established trade, slaughter takes place during the accounting year ended 31 December 2010 and the taxpayer requests spreading relief. The compensation profit should be deducted in

computing the trading profit or loss of 2010-11 and one-third should be added to the chargeable trading profits (or deducted from the trading losses) for each of the years 2011-2012, 2012-13

and 2013-14.

A dairy farmer commences trading on 1 July 2008 and produces accounts to 31 May annually, showing profits of £20,000 including total compensation profits of £12,000.

Slaughter takes place during the accounting year ending 30 September 2007 and the trade ceases on 30 November 2008. If the farmer requests spreading relief, the compensation receivable is a

receipt of the 2007 accounting year, and the total compensation profit is deducted from the 2007-08 profit, and one-half is added to the trading profits (or deducted from the trading losses)

for both 2007-08 and 2008-09.

Slaughter takes place during the accounting year ending 30 September 2008 and the trade ceases on 30 November 2010. If the farmer requests spreading relief, the compensation receivable is a

receipt of the 2008 accounting year, and the total compensation profit is deducted from the 2000-09 profit, and one-third is added to the chargeable trading profits (or deducted from the

trading losses) for 2008-09, 2009-10 and 2010-11.

Adjustments for spreading relief should be made before adjustments for farmers' averaging.

Spreading relief should be requested by the individual partner. The individual's share of the partnership profits should be adjusted in the same way as those of a sole trader (see above)

using the appropriate proportion of the `total compensation profit'.

The compensation is a receipt of the AP in which the slaughter takes place, and an amount equal to the total compensation profit should be deducted from the accounting period in which the

slaughter takes place and treated as accruing evenly over the subsequent three accounting periods from the end of that accounting period or, if the farming trade should cease within the

period, up to the date of cessation.