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In 2005/06 the taxpayer a farmer and agricultural contractor made a trading profit of £20 244. In 2006/07 he suffered a loss of £10 315 partly because he sold farm machinery towards the end of 2005 and bought replacement machinery after April 2006.
He sought to apply averaging under ITTOIA 2005 s 221 to the 2005/06 profit and the 2007/08 loss.
HMRC said the calculation was incorrect because averaging applies only to profits. This led to the taxpayer having taxable profits for both years with a trading loss in 2006/07 that could be set against the profit for the year (as averaged) leaving a small loss to be carried forward to 2007/08.
The First-tier Tribunal dismissed the taxpayer’s case; he appealed to the Upper Tribunal.
The taxpayer accepted HMRC’s calculations were correct but argued the effect...
