Rising Costs for Farmers – How Can Tax Relief Help in Loss-Making Years?

Recent headlines have highlighted the growing pressure on the agricultural sector, with many farming businesses facing a significantly more challenging financial outlook than in previous years. 

A combination of global and domestic factors has driven this change. Input costs have increased sharply, with red diesel prices rising materially and fertiliser costs reported to have increased by as much as 80%. At the same time, wider geopolitical tensions continue to impact supply chains and commodity prices. A report shared by the Aberdeen & Grampian Chamber of Commerce recognises that UK Farmers face £70k losses as Iran conflict drives up costs by 2027. 

Against this backdrop, it is perhaps unsurprising that many farming businesses are now forecasting periods of reduced profitability or, in some cases, trading losses. Whilst losses are clearly unwelcome from a commercial perspective, it is important to recognise that the UK tax system does provide a number of mechanisms to obtain relief. The key is ensuring that losses are utilised in the most efficient way to support cashflow and longer-term financial sustainability. 

Set out below are some of the main reliefs available: 

• Carry forward – This is the default position. By offsetting the losses against future profits of the same trade, it ensures that tax is ultimately only paid on long-term net profitability, rather than short-term volatility. 
• Sideways relief – Where a farming business makes a loss, it is often possible to relieve that loss against other income in the same tax year or the previous year. For many farmers with different income streams (for example, diversification into property or other businesses), this is often the most valuable route.  Depending on the level of loss, the personal allowance can be wasted so it is worth calculating whether it is more beneficial to utilise the loss in the current or previous year. 
• Capital gains – In certain circumstances, such as where an individual does not have sufficient income to offset the loss in full, trading losses may be set against capital gains (subject to specific claims and conditions). This can be particularly relevant where land or property is sold during a restructuring, or assets are disposed of to manage borrowing or reinvestment.  
• Farmers’ Averaging – For self-employed individuals (including those in partnership), farmers can average their profits over two or five years to smooth out fluctuating incomes and prevent paying higher rates of tax in profitable years.  Profits and losses can be averaged together as part of that calculation together with utilising losses as set out above.   

For farming businesses in particular, it is also important to be mindful of the commerciality rules. Where losses are sustained over a prolonged period, HMRC may seek to restrict relief if the activity is not considered to be carried on with a view to profit. In addition, the “five-year rule” can limit the availability of sideways loss relief if losses arise in more than five out of seven consecutive years. Ensuring that there is a clear commercial rationale and evidence of profitability over the longer term is therefore essential. 

How AAB can help

The current cost pressures facing the agricultural sector are, in many cases, outside the control of individual farmers. They are driven by global economic conditions, supply chain disruption and geopolitical uncertainty. 

However, taking a proactive and informed approach to tax can make a meaningful difference. Effective loss relief planning can improve short-term cash flow through tax repayments, reduce overall tax liabilities and support longer-term financial resilience during periods of volatility. 

If you are navigating a loss-making period, now is an important time to review your tax position and ensure it is working as efficiently as possible. If you would like to discuss any of the points raised above, please do not hesitate to get in touch with Jill Walker, Emily Robson, your usual AAB contact, or a member of our Private Client tax team. 

Equally, with changes to Agricultural Relief and Business Relief coming into effect from April 2026, now is a good time for farming families to take stock – 2026 Changes to Agricultural & Business Property Relief. If you would like to talk through how these changes could affect your farming business, we’d be very happy to have a conversation.