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Herd basis


Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance

Herd basis


Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance
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This guidance note details the herd basis treatment for farmers which allows animals allocated to trading stock to be treated as capital assets.

Overview of the herd basis

As a rule, farm animals are allocated to trading stock within the annual farm accounts. However, some such animals are kept primarily for the products they produce, or in breeding cases for their offspring, and are, to all intents and purposes, capital assets. UK tax law recognises this by giving the farmer the option of electing to use the herd basis.

Overview of key points:

  1. •

    the production herd is excluded from trading stock, and thus the farm profit and loss account (farm P&L), and instead capitalised on the balance sheet

  2. •

    the cost of maintaining the herd can be charged against tax

  3. •

    any profit on its eventual disposal is tax free

  4. •

    an election to HMRC must be made, and is irrevocable

  5. •

    qualifying activities are either:

    1. â—¦

      animals kept for the breeding and sale of their offspring, or

    2. â—¦

      animals kept for the production and sale of products

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  • 25 Apr 2024 12:21

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