Farming: spreading relief following compulsory slaughter: computation
S225ZA-S225ZG Income Tax (Trading and Other Income) Act 2005, S127A-S127G Corporation Tax Act 2009
The farmer may make a claim under the legislation for spreading relief following the compulsory slaughter of eligible trading stock. This includes all compulsorily slaughtered livestock other than animals in respect of which a herd basis election has been or could be made. The scope of the relief is, in practice, therefore normally restricted to compensation receipts in respect of the slaughter of:
- immature animals (followers) in a production herd
- mature animals which do not constitute the whole, or a substantial part, of a production herd
- animals kept for sale or slaughter, for example store cattle
- flying flocks or herds (see seventh bullet in BIM55570)
In broad terms, the relief operates by first charging all compensation receipts for relevant animals as receipts in the period of slaughter, and then deducting from the profits of that tax year the “total compensation profit”. An amount equal to that deduction is then added to trading receipts and spread evenly over the following three years.
The `total compensation profit’, is defined as the sum of profits that the farmer makes for all relevant animals slaughtered during the period. The amount of that profit, for each animal, is the amount by which the compensation for the animal exceeds its book value, or in the case of a farming trade carried on in partnership, the farmer’s share of that amount.
The spreading relief can only reduce the taxable profit for the tax year in which the animals are slaughtered - it cannot create or increase a loss.
As regards the interaction of this relief with the rules concerning basis periods, and in particular commencement and cessation of trade, see the examples at BIM55190.
John, a dairy farmer, who has not previously elected for the herd basis, makes up his accounts to 31 March. In November 2010 all his cattle are slaughtered. The livestock figures shown in his accounts for the year to 31 March 2011 are as follows:
|Opening valuation 1 April 2010|
|80 milking cows @ £600||£48,000|
|50 followers @ £250 (average)||£12,500|
|80 milking cows @ £900||£72,000|
|40 followers (in hand at 1 April 2010) @ £550 (average)||£22,000|
|20 followers (new)||£3,600|
John makes a herd basis election. The profit of £24,000 (£72,000 - £48,000) on the mature animals is therefore excluded from his computation of taxable profit. The balance of the compensation receipts relating to the immature animals is eligible for spreading relief.
The `total compensation profit’ is computed as follows:
|On 40 followers in hand at 1 April 2010 at £300 (£550 - £250) a head||£12,000|
|On 20 followers born in the year (25% of £3,600)||£900|
The taxable profit for 2010-11 is reduced by £12,900 and the taxable profits for 2011-12, 2012-13 and 2013-14 are increased by £4,300 a year.
The taxable profit for 2010-11 is reduced by £36,900 and the taxable profits for 2011-12, 2012-13 and 2013-14 are increased by £12,300 a year.