FARMERS hit by the long-running agricultural recession can now offset their businesses losses against tax thanks to hard lobbying by the Country Land and Business Association (CLA).

For a number of years, the CLA has been urging the Government to repeal the farming losses section 397 of the Income and Corporation Taxes 1988 under which farmers making losses for more than five consecutive years have been prevented from setting the deficit against other earnings or capital gains.

The five-year rule is peculiar to agriculture and was originally aimed at preventing high earners from using "hobby farms" to reduce their income tax bills.

Now, Inland Revenue has announced a temporary relaxation of the restriction for the past and present tax years which means that farmers who have been making losses since the present recession first hit the industry in the mid-1990s will be able to offset them against tax payable, subject to the farm business making a profit for a least one year before the start of the five-year period.

Miss Dorothy Fairburn regional director for the CLA in Yorkshire, said "Obviously we welcome the Government's decision to relax the five-year rule for two years.

"It now makes sense for the Government to go further and bring farming into line with other types of business by getting rid of the unnecessary five-year rule altogether."

Updated: 10:30 Thursday, January 25, 2001