TC09615 - [2025] UKFTT 01016 (TC)

In the SoC, Mr Waldegrave summarised HMRC’s “primary case” as follows:

“…the Racing Activities did not form part of a trade consisting of the Combined Activities, and also did not themselves constitute a separate trade carried on by the Appellant. Accordingly, in calculating the Appellant’s trading profits or losses for the Relevant Years, both the income and the expenses associated with the Racing Activities should be left out of account.”

The SoC added that:

“HMRC further contends that the Racing Activities did not constitute a free-standing trade. This is essentially because one of the characteristics of a ‘trade’ is that it is carried on a commercial basis. HMRC’s position is that activities consisting of the training and racing of racehorses are inherently unlikely to be commercial.”

The SoC also included the following passages:

“[29] If HMRC is correct that the Racing Activities did not form part of the Appellant’s trade, then it follows that when a horse involved in the Breeding Activities was used for the Racing Activities, the market value of the horse should have been brought into account as a receipt of the trade in accordance with [section] 172B of the ITTOIA 2005.

[30] Correspondingly, when a horse ceased to be used for the Racing Activities and came to be held for the Breeding Activities, the market value of the horse should have been treated as a cost of the Appellant’s trading stock in accordance with section 172C of the ITTOIA 2005.

[31] HMRC also notes that the profits of the Appellant’s trade were required to be calculated in accordance with generally accepted accounting practice (“GAAP”) by virtue of section 25 of the ITTOIA 2005. GAAP required the valuation of the Appellant’s trading stock at the beginning and end of each accounting period.

[32] To the extent necessary HMRC will adduce expert valuation evidence for the purposes of the requirements of GAAP and the rules found in Chapter 11A of the ITTOIA 2005.”

Under the heading “HMRC’s Alternative Arguments”, the SoC continued:

“[33] If, contrary to the submissions set out above, the FTT concludes that the Appellant’s trade encompassed both the Breeding Activities and the Racing Activities, then HMRC will argue that the expenses associated with the Racing Activities were not incurred wholly and exclusively for the purposes of the Appellant’s trade in terms of section 34 of the ITTOIA 2005. Accordingly, in calculating the Appellant’s trading profits/losses no deduction is available for the expenses associated with the Racing Activities.

[34] Further or alternatively, if the Appellant’s trade consisted of the Combined Activities, then HMRC will argue:

(1)

Relief under section 64 of the ITA 2007 for trade losses is restricted on the basis that the trade was not carried on on a commercial basis and with a view to profit in terms of section 66 of the ITA 2007.

(2)

Further or alternatively, and to the extent that the Appellant’s trade constitutes ‘farming’ in terms of section 996 of the ITA 2007, relief under section 64 of the ITA 2007 for trade losses is restricted on the basis that the ‘reasonable expectation of profit’ test in section 68 of the ITA 2007 was not satisfied.”

In summary, on the basis of the SoC:

The SoC also raised two valuation issues: