The 5 year loss rule for Farmers.

LHP Accountants
Sep 9, 2025
3 min read

The general options for losses in a continuing trade is that they can be offset against other taxable income in the same tax year, carried back against other income in the previous tax year, or carried forward to be offset against profits from the same trade in future tax years.

The loss claims will result in tax relief, and often tax repayment, which can help with cash flow in a loss making year. However, for farmers, the loss relief is restricted if the trade is loss making for more that five years in succession.

How the five year rule works:

The tax adjusted loss from a farm trade can be offset against other income to reduce the tax payable on that income. This is known as sideways loss relief.

The tax adjusted loss is generally calculated by taking the accounting profit or loss for the year, adding back depreciation and deducting any capital allowances. Although in practice, other adjustments may also be required. This adjusted loss figure can then be claimed against other income in the current or prior tax year. For example, if claimed against employment income, this may result in a repayment of tax paid via PAYE, or if carried back against income in the prior tax year, a repayment of tax paid in that year may be due.

The loss claim is all or nothing, so cannot be restricted to preserve personal allowances. If for five years in succession there is a loss before capital allowance claims, then in the 6th year, no sideways relief claim can be made. Instead, the loss can only be carried forward against future profits of the same trade. If the farming trade is a new trade, then HMRC allows sideways relief for the first 6 years. Therefore, in the 7th year, there will need to be a profit before capital allowances to be able to offset the losses for the next 5 years against other income.

It is important to note that the profit/loss calculation is based on tax years and not accounting periods, so if your year end is not 31st March or 5th April, then the loss would need to be apportioned to assess whether it can be claimed.

Record keeping

It is important to maintain good bookkeeping to enable you to track your financial position throughout the year. For example, if you have been offsetting the farming loss against other income for the previous 5 years, then to increase your chances of making a profit in the 6th year, you will need to consider the timing of your expenses. For example, if your year end is 31 March, consider buying fertiliser in April instead of March to reduce your expenses in the tax year where a profit is required.

If you have any further queries about offsetting losses, then please don’t hesitate to contact us.

Carmarthen Branch - Llys Deri, Parc Pensarn, Carmarthen, SA31 2NF

01267 237534 | carmarthen@lhp.co.uk

Haverfordwest Branch - 1st Floor Agriculture House, Winch Lane, Haverfordwest, SA61 1R 01437 766749 | haverfordwest@lhp.co.uk

Lampeter Branch - Tŷ Harford, Sgwâr Harford, Llambed. SA48 7HD

01570 422204 | lampeter@lhp.co.uk

Tenby Branch -Barclays Bank Chambers, 18 High Street, Tenby, SA70 7HD

01834 844743 | tenby@lhp.co.uk

Aberaeron Branch - 1 North Road, Aberaeron, Ceredigion SA46 OJD

01545 570401 | Aberaeron@lhp.co.uk

Cross Hands Branch - Suite 3 & 6, Block B, Llys Y Barcud, Cross Hands, Llanelli, SA14 6RX 01269 834877 | crosshands@lhp.co.uk

Aberystwyth Branch - Aberystwyth Innovation & Enterprise Campus, Gogerddan, Aberystwyth, Ceredigion SY23 3EE