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Tax expert loses trade loss relief appeal

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20th Jun 2016
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International tax lawyer Stephen Gray has failed in an attempt to set-off trade losses against self assessment income.

Gray appealed HMRC’s decision to issue closure notices for the years 2011-12 and 2012-13, upheld on review, that his activities as a promoter for his wife as a classical concert pianist amounted to a business venture, and that such activity was not undertaken on a normal commercial basis.

As outlined in the tribunal judgement, HMRC originally said the questions to be answered were whether Gray was trading as a promoter, and if he was, whether this was on a commercial basis, being a requirement of the legislation.

Section 66 of the Income Tax Act 2007 provides: “restriction on relief unless trade is commercial”, that trade loss relief against general income for a loss made in a trade in a tax year is not available unless the trade is commercial; and that the trade is commercial if it is carried on throughout the basis period for the tax year on a commercial basis, and with a view to the realisation of profits of the trade.

The legislation also states that if at any time a trade is carried on so as to afford a reasonable expectation of profit, it is treated as carried on at that time with a view to the realisation of profits.

Gray’s appeal raised two questions: The first whether his activities as a promoter of Ms Jacoby constituted either a trade or a venture in the nature of a trade, and whether throughout the period he carried out that trade on a commercial basis with a view to making a profit.

In HMRC’s submission, the issue of “commerciality” was examined and specifically whether Gray’s activities had been carried out with a view to profit.

The evidence showed Jacoby did not have an established book of business, and that concerts would be booked two to three years in advance. If Gray was approaching the matter commercially, “he would need to know when to stop throwing good money after bad,” the submission said.

Gray said in evidence his expectation as to the eventual profits of the promotion business; but it had not been demonstrated how these figures had been arrived at, as opposed to the economic reality.

Apart from the lack of cash flow predictions and any recorded business plan, there were no separate accounts setting out the results of the promotion business. Nor was there any stated specific figure to trigger any decision by Gray to come out of the business.

In his concluding remarks, tribunal judge John Clark said:

“We have found that the documentary evidence contradicts the evidence of Mr Gray and Ms Jacoby concerning Mr Wright’s forecasts of the minimum number of paying concerts which Ms Jacoby could obtain for 2011, 2012 and 2013. As a result, we have found that the documentary evidence is to be preferred. It follows that Mr Gray’s expectations as to profit calculated by reference to those stated forecasts cannot have been as he stated in his evidence.”

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By pjb123
22nd Jun 2016 18:23

Who is Mr Wright?

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By pjb123
22nd Jun 2016 18:32

Sorry -hadn't previously read the tribunal judgment and now know who is Mr Wright.

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