Corporation Tax Act 2010 section 49

Reasonable expectation of profit

Section 49 explains how farming or market gardening activities can meet the "reasonable expectation of profit" test, which, if satisfied, allows loss relief that would otherwise be restricted under section 48.

• The test is judged from the perspective of a competent farmer or market gardener — would such a person, carrying on the same activities in the current year, reasonably expect the activities to become profitable in the future?
• The test also requires that a competent person starting the activities at the beginning of the prior loss-making period could not reasonably have expected them to become profitable before the end of the current year — in other words, the prolonged losses must have been foreseeable from the outset.
• The "prior period of loss" is normally the five years immediately before the current year, but it can extend further back if the company made continuous losses (ignoring capital allowances) over successive accounting periods totalling more than five years and ending at the end of that five-year window.
• When assessing whether future profits are reasonably expected, the nature of the activities as a whole and the way they were carried on during the current year must both be considered, with "profit" understood in its ordinary commercial sense.