To expand or not to expand?

[Cattleya]

I have been keeping bees for a couple of years now and am naturally running at a substantial loss in spite of selling a few jars of honey to friends and family. For next year I have to decide whether to keep a modest, hobby-level operation with a handful of hives or expand to a couple of handfuls and sell honey more commercially, in which case I would have to involve the taxman. I am currently a self-employed gardener (sole trader) and for a couple of years at least I would save some tax if I could offset the setup losses for the bee keeping against profits from the gardening. In order to do this, gardening and bee keeping have to be the same 'trade'...but HMRC have no definitions of different trades, it all seems to be done by case law. Does anyone have any knowledge or experience of this subject?

 

[Walrus]

From HMRC website:

In the case of an unincorporated business it is unusual for business activities carried on by the same person...to amount to more than one trade unless

- the two activities are so fundamentally different that they cannot constitute one trade, or
- the activities are not interconnected, interlaced nor interdependent (Scales v George Thompson & Co Ltd [1927] 13TC83).

In Scales v George Thompson and Co Ltd [1927] 13TC83 Rowlatt J observed on page 86, `the real question is was there any inter-connection, any interlacing, any interdependence, any unity at all embracing those two businesses’

I think you could find some inter-connection between gardening and beekeeping. Some of your gardening might involve planting pollinator friendly plants. Perhaps the beekeeping operation is a natural extension/development of your existing gardening business, and therefore it amounts to a single trade.

But you may get a different view elsewhere...

 

[Cattleya]

Walrus, thanks, some useful thoughts there. Will be interesting to see if anyone has any relevant experience with HMRC.

 

[enrico]

Ran a small business for years and the first two years were recouping losses.
I think if I had run my beekeeping hobby as a business I would still be doing the same after 40 years.
It would benefit you to declare it and have it set against your allowances but I never did and now I can't be bothered.
I admire you for thinking of it at this early stage. My first few years were all about the bees, the financial side of things came a poor second. Hind sight is a wonderful thing!
E

 

[Poly Hive]

I went commercial in my 4th year, sort of by accident but...

In 1990 I had overheads of £1500 rent plus phone and electric. On the plus side I had the use of 40 stocks and a totaly free hand.

I was working offshore at the time in blocks of 14 on 14 off which in reality were 15 on and 13 off but hey ho.

I hired an accountant and they took the numbers and added them to my tax return and HMRC never said boo.

PH

 

[boywonder]

Just to clarify, you can run as many diverse businesses as you choose, but they would need to be declared as separate employments on the tax return (presumably the advice quoted by Walrus relates to the legitimacy of running both sets of numbers through one 'employment').

The losses for one can be used to offset profits in the other.

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[Walrus]

Just to clarify, you can run as many diverse businesses as you choose, but they would need to be declared as separate employments on the tax return (presumably the advice quoted by Walrus relates to the legitimacy of running both sets of numbers through one 'employment').

The losses for one can be used to offset profits in the other.

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This is not my understanding at all. It's been a long time since I worked in the profession though. My understanding is that:

- yes, you can have as many trades as you wish (record accounts separately for each)
- losses from one trade cannot be offset against profits of another trade [EDIT: this seems to be wrong! Sorry about that]
- as per my earlier post, case law suggests that beekeeping and gardening trades could well be considered as part of a single trade in the right circumstances

HOWEVER, it sounds like one for current up-to-date accountants* rather than beekeepers.

*Boy Wonder - if you are such a thing then apologies; things must have changed since my day

 

[boywonder]

Walrus - happy to defer to you here. I am an accountant, but am only a mere ACMA ;-), so I need to acknowledge that this is not 100% my area of domain expertise.

However, what I say is what I believe to be the case (it is the way in which my own income is declared and the way I offset my own losses). There is the premise of losses being offset against future profits from the same trade only (and I take your point about the beekeeping and gardening being 'allied') ... but, as a Sole Trader, you can, and should, be able to offset the losses in the current period against Self Assessed net income - whatever its source. In a wave of self doubt, I had a quick Google, and there is some stuff I see on this online ...

e.g. https://www.whitefieldtax.co.uk/60-second-update-loss-relief-options-available-to-a-sole-trader/

Either way, what I have learnt in seeking this out is that it becomes quite nuanced around the area of 'hobby farming'

Basically - my advice has now changed to, "seek the advice of your own accountant"

Rather them go to jail than me; I may have my own battles to fight !!

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[Walrus]

I think you are right Boy Wonder. This summarises it quite well:

https://www.accaglobal.com/ca/en/te...search/2014/january/using-trading-losses.html

 

[Beersmith]

I have been keeping bees for a couple of years now and am naturally running at a substantial loss in spite of selling a few jars of honey to friends and family. For next year I have to decide whether to keep a modest, hobby-level operation with a handful of hives or expand to a couple of handfuls and sell honey more commercially, in which case I would have to involve the taxman. I am currently a self-employed gardener (sole trader) and for a couple of years at least I would save some tax if I could offset the setup losses for the bee keeping against profits from the gardening. In order to do this, gardening and bee keeping have to be the same 'trade'...but HMRC have no definitions of different trades, it all seems to be done by case law. Does anyone have any knowledge or experience of this subject?

I spoke to a friend who is a chartered business accountant. He made no attempt to make a close analysis, but pointed out that much depends on how the gardening business operates.

If your clients give you freedom to design, create and manage a garden, you have the opportunity to create bee friendly designs, a cycle of nectar yielding plants and something that is arguably integrated with your bee keeping, especially if some of your clients play host to your hives from time to time. You are in control and can demonstrate how the two businesses are linked, although locations may be important. Quick verdict - worth a punt.

But if in the gardening business the client calls the shots "I want a row of conifers there, all the rest to lawn and a gazebo at the far end" or "just mow the front lawn and prune the roses" or even "rotavate the back garden and plant spuds", the claim to be linked is unlikely to stand up to scrutiny. Quick verdict - risky - assess the damage if the claim is rejected.

 

[Poly Hive]

Having had a chat with a "friend" in the pub you now have three lots of advice, shortly to be four.

Put your hand in your pocket and go pay an accountant for half an hour of advice. It's called an investment. It could save you considerable grief and money.

PH

 

[boywonder]

Put your hand in your pocket and go pay an accountant for half an hour of advice. It's called an investment. It could save you considerable grief and money.



PH

That is clearly the best advice of the lot.

Just as a final tuppence-worth - for my own sanity, I ran the issue past a couple of other accountant friends, and they confirm (caveat, caveat, caveat) that you can offset any allowable expense against any and all income in a tax year... and if you think about it, in an age where more and more people have multiple side-hustles, it should be so - i.e. you, as an individual, are taxed on the net of all of your gross employment income less all of your allowable expenses.

If that's the name of the game, then the whole gardening / beekeeping thing is a complete red herring.

However you can only carry forward (or carry back) losses to other tax years if they are applied to profits arising from the same trade - in which case it is relevant.

... but the best advice is to go directly to the Oracle, like PH says.

p.s. sent at the same time I am engaging a solicitor to the tune of £800 to undertake an update to Title Deeds on a TR1, which I could quite easily submit to the Land Registry myself for £20.... why ?? Well, sometimes it's better to pay for, and be able to stand behind paid, professional advocacy, fundamentally as an insurance against future bites on the bum

 

[Beersmith]

pay for, and be able to stand behind paid, professional advocacy, fundamentally as an insurance against future bites on the bum

pay an accountant for half an hour of advice. It's called an investment. It could save you considerable grief and money.

assess the damage if the claim is rejected.

Despite coming at the issue from different angles, I hardly feel there are cavernous disagreement s here.

 

[Cattleya]

Many thanks folks for your inputs and your concern for my financial foolhardiness. With the benefit of a background in the programme management of high tech international research programmes I conclude the following:
1. The assumption that HMRC would regard gardening and bee keeping as the same 'trade' is high risk and would require mitigating by talking to an accountant with relevant experience (or perhaps to HMRC direct...) and/or by some applied creative accountancy.
2. If I consider bee keeping to be a separate 'trade' (low risk) I can still offset future profits with initial losses within defined limits and I can carry on filling in my self assessment form myself but...
3. HMRC may not even regard bee keeping as a trade below a certain number of colonies which is not well defined ('hobby farming')
4. Beekeepers are not very forthcoming about their tax affairs
I will go back to crunching the numbers and staring hard at the business case.
Cheers