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HMRC internal manual

Business Income Manual

Farming: herd basis: minor disposals from the herd without replacement

S118 Income Tax (Trading and Other Income) Act 2005, S116 Corporation Tax Act 2009

If an animal in the herd:

  • is sold or dies, and
  • is not replaced (see BIM55520),


  • its disposal is not part of a substantial reduction in herd numbers (see BIM55525),

the resulting profit or loss is to be taken into account in arriving at the trading profits.

For this purpose, the profit or loss is measured by reference to the sale proceeds (including, in the case of death, any insurance or compensation moneys) of the animal, and its cost. If the animal entered the herd as a replacement, the cost to be used will already have been allowed as a deduction when it entered the herd (see BIM55535). However, as the two computations are different, that is not relevant.

Cost means:

  • in the case of a mature animal bought in, the price paid,
  • in the case of a home bred animal, the cost of breeding and rearing to maturity,
  • in the case of an immature animal bought in, the price paid plus the cost of rearing to maturity,
  • in the case of an animal received by gift, its market value at the time it was acquired.

Where it is not possible to ascertain the actual cost of breeding and rearing, deemed cost as described in Helpsheet 232, reproduced at BIM55410, may be used.

Cost should be ascertained from the farmer’s records. The introduction of strict animal movement records for disease control purposes gives the farmer a better opportunity to satisfy his obligation to create and maintain adequate records. If the disposed animal’s cost cannot be ascertained from the farmer’s records the amount to be deducted from the sale proceeds will need to be agreed or determined, in the absence of agreement, by the tribunal.


Brian has been a dairy farmer since 2010 when he started off with 80 cows purchased for £800 per head. He increased the herd to 100 cows in 2011 at a cost of £18000 and spent a further £15000 adding an additional 15 cows in 2012. A herd basis election has been in force throughout and the herd account at 31 May 2012 shows:

80 cows @ £800 £64,000
20 cows @ £900 £18,000
15 cows @ £1000 £15,000
Total (115 animals) £97,000

During the year ended 31 May 2013 he sells 10 cows for £1,200 each and does not replace them. He identifies that the animals disposed of were acquired for £900 each. The sale of 10 cows out of a herd of 115 does not amount to a substantial reduction in the herd. In practice, where the herd records kept by the farmer are not sufficiently detailed to allow particular animals to be identified and where there is an absence of evidence pointing to some other alternative being preferable, actual cost may be taken to be equal to the Helpsheet 232 formula applied to the sale proceeds received.

Proceeds 10 cows @ £1,200 £12,000
Cost 10 cows @ £900 £9,000
Profit £3,000

The £3,000 profit is included in the computation of Brian’s farming profit for the year.

The herd account of the herd at 31 May 2013 is:

80 cows @ £800 £64,000
10 cows @ £900 £9,000
15 cows @ £1,000 £15,000
Total (105 animals) £88,000

The disposal of 10 cows should be reflected in the trading account and consequently no adjustment in the tax computation is required.