B2.451 Losses arising in the trade
Losses can be suffered in a trade for a variety of reasons, for example, as a result of theft, fire or bank failures. No sum can be deducted in respect of any loss which is not connected with or does not arise out of the trade1.
A loss that is incurred in a transaction entered into for the purpose of earning the profits of the trade is a permissible deduction. Any deduction in respect of a loss should normally be allowed in arriving at the profits of the period in which the loss is incurred or its amount determined. The question whether in any particular case the loss arose out of or in connection with the trade is a question of fact2.
In Laver3 persons concerned in property transactions financed a company to carry out a film manufacturing venture, pledging ground rents for this purpose. The venture failed, a loss was incurred, and the ground rents were sold. They were held to be carrying on a trade, but the loss was not regarded as a trading loss. Their contention that they were carrying on a composite business of transactions in land and the promotion and financing of companies did not succeed.
In Warnes & Co Ltd4 the company, which carried on business as an oil merchant, was sued for penalty and was ordered to both pay that penalty