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Tax adviser’s horse-trading losses disallowed

David Cliff was optimistic about the losses he made buying and selling shares in racehorses until the first tier tribunal firmly reined him in.

1st Nov 2019
Tax writer
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Race Horse Galloping

David Cliff (TC07358) was a self-employed tax consultant, who offered his services to racehorse trainers, jockeys, breeders and others in the equine industry. His involvement with matters equine led him – initially as a hobby – to purchase shares in racehorses and horse-racing syndicates.

He described himself as “a dealer in thoroughbreds” and declared this second self-employed venture on his tax returns for 2007/08 to 2011/12.

And they’re off!

For those five years, Cliff accumulated losses from the horse-related trade of around £160,000 and claimed sideways loss relief against his other income.

In August 2014, HMRC opened an enquiry into Cliff’s 2012/13 return and asked for “comments on the commerciality of his business, including provision of his business plan”.

Cliff replied that his loss-making activity consisted of: “the purchase of shares in racehorses, the racing thereof under the rules of racing for prize money, and the sale thereon at a profit.”

HMRC was not impressed and issued a closure notice for 2012/13 disallowing the losses, together with discovery assessments (TMA 1970 s29) for the previous five years clawing back loss relief previously given.

HMRC also issued penalty notices under FA 2007 Schedule 24 for errors in tax returns caused by Cliff’s “deliberate” actions.

Coming up to the first hurdle

At the tribunal hearing, Judge Bailey identified two paramount questions:

  1. Were the TMA 1970 s 29 discovery assessments validly issued?
  2. Was Cliff trading commercially and with a view to a profit?

She pointed out that the burden of proof lies with HMRC for the first of these, but with Cliff for the second.

Deliberate behaviour

Once the window for enquiry into the tax return has closed, HMRC can only raise a discovery assessment if:

  • the loss of tax was brought about deliberately or through carelessness; or
  • at the time the enquiry window closed, a reasonable officer could not have been aware – based upon information made available – that there was a loss of tax.

HMRC had initially concentrated on the second condition. Cliff’s description of “dealer in thoroughbreds” was insufficient to alert an HMRC officer to the fact that he was merely buying and selling shares in racehorse syndicates. That information only came to light some years down the line.

At the first tier tribunal hearing, HMRC worked on the first condition. Cliff had – by his own admission – taken a conscious choice to label his activities in the way he did. If that label led to an error in assessing the tax, then the effect was “deliberate”, and thus the extended time limits for assessment should apply.

The judge dismissed Cliff’s suggestion that “deliberate” only applies where there was “a conscious decision to act deceitfully or with illicit intentions” – supported by the Court of Appeal’s comments in Tooth [2019] EWCA Civ 826.

Whichever route you take, it was clear that HMRC had ample justification for raising assessments out of time. Whether those assessments were correct would depend upon a second question.

Trading commercially

There was a startling lack of evidence to show that Cliff had incurred any losses whatsoever. The judge commented that this “gaping omission is inexplicable” since Cliff practices as “a tax consultant, and must know that records must be kept to demonstrate claims made”.

The judge also noted that ITTOIA 2005 s 30 specifically prevents racehorses – or shares in racehorses – from being treated as trading stock. Since Cliff “does not assert that he bought or sold any other asset as a trade”, his activities could not be categorised as a trade for tax purposes.

Judge Bailey had no difficulty in concluding that Cliff was not, in fact, carrying on a trade commercially with a view to a profit. As a result, his claim to loss relief was disallowed, and HMRC was justified in assessing him to claw back that relief.


Cliff’s hobby of dabbling in bloodstock was always just that – a hobby, not a quest for profit. As a tax consultant engaged in supporting the horseracing world, he must have been well aware that it is a notorious money pit.

The somewhat ornate phrase (“dealer in thoroughbreds”) he used to describe his activities suggests a degree of romanticism or even delusion which overrode his professional training and caution, leading him to make unjustifiable claims to tax relief.

The judge was rightly concerned that – as a tax professional – he should have known better.

Replies (4)

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By Justin Bryant
01st Nov 2019 15:51

The judge's comments re Tooth and deliberate misconduct have been widely criticised (or at least seriously questioned) in the tax press and elsewhere and his reasoning there is clearly incorrect.

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Replying to Justin Bryant:
By whitevanman
02nd Nov 2019 23:06

As often seems to happen, you have asserted that the judge was incorrect and yet it is clear that you have not (surely cannot have) read and understood the case. If what you say about criticism elsewhere is correct, I can only assume that, like you, those critics did not read and / or understand the decision.

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By Ian McTernan CTA
04th Nov 2019 11:58

A good decision. Gambling is not generally a tax deductible expense in this country and 'investing' in horse syndicates is for the vast majority not a profitable punt- which is why they exist in the first place. If it was generally profitable, we wouldn't need syndicates!

The lack of evidence supporting the claims is worrying and perhaps his Institute should be taking a little visit to check his other work.

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Replying to Ian McTernan CTA:
By whitevanman
04th Nov 2019 12:04


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