TC09615 - [2025] UKFTT 01016 (TC)

Under the heading “self-employment-horse breeding and racing”, the Closure Notice for 2010-11 said that HMRC’s “conclusion” was “your trade loss has been overstated”.

Under the heading “reasons for our conclusion”, it said:

“HMRC’s view is that you are carrying on a trade as a bloodstock owner and breeder, the activities of which are chargeable under Section 5 ITTOIA 2005.

HMRC don’t consider horse racing as a trade or that it is likely to form part of the activities of a wider trade Racing and training are treated as non-business activities and should not be included in your tax return.”

Under the heading “how this notice amends your Self Assessment tax return”, the Closure Notice said that Mr Tinkler’s net loss from his self-employment had decreased from £1,872,428 to £70,992, and the loss set against other income of the same year had decreased by the same amount. The notice also directed Mr Tinkler to “the attached schedule” which provided “full details of the figures amended including stock valuations”.

That schedule set out a comparison of the original figures returned by Mr Tinkler with (a) those which resulted from splitting out the income and costs from the Racing Activity, and (b) the figures calculated on the Wholly and Exclusively basis. The schedule was supported by a profit and loss account produced by HMRC which related only to the Breeding Activity; it included opening and closing stock valuations for each of the horses which HMRC considered fell within that Activity.

The covering letter to the Closure Notice said:

“…please find enclosed the closure notice which reflects our conclusion that the income and expenses relating to horse racing are not part of your trade and as such, the profits/and or losses that you’ve declared from your self-employed business are overstated.

There are other arguments as to the possible tax consequences that relate to the income and expenditure relating to horse racing. These are properly not part of the closure notice as they are not our conclusions, but, we thought it proper to note that if you disagreed with the enclosed closure notice and refer that disagreement to a Tax Tribunal, HMRC reserve the right to refer to alternative arguments which may lead to a different amendment to your tax return.

We may argue that the income arising from horse racing is chargeable on you under Section 5 ITTOIA 2005, but the expense relating to horse racing would not be an allowable deduction of the business as they are not incurred wholly and exclusively for the purposes of trade [“the Wholly and Exclusively Issue”].

The consequence of this amendment would be that your losses would be reduced to £239,043. This would result in additional income tax due of £628,362.85.”