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HMRC internal manual

Business Income Manual

Farming: herd basis: new right of election: compulsory slaughter

S126 Income Tax (Trading and Other Income) Act 2005, S124 Corporation Tax Act 2009

A fresh opportunity to elect for the herd basis outside the normal time limits is provided where the whole or a substantial part (see BIM55525) of a production herd is compulsorily slaughtered on account of disease and compensation is payable (see BIM55180 onwards).

The year in which such compensation is due is deemed to be the first period of account in which a farmer keeps a herd of that class and the time limits apply accordingly, see BIM55600.

In each case, the election takes effect from the period of account in which the compensation becomes due. Animals covered by the election (normally only mature production animals, see BIM55575) are treated as transferred from trading stock to the herd at the start of that period or, if later, when they become mature. The cost of those animals should be credited as a trading receipt.

However, where exceptionally animals were valued at the previous accounting date at market value, being less than cost, no objection need be raised to the transfer being based on that value. The election continues to have effect for all subsequent periods, unless the farmer ceases to keep a herd of the specified class for a period of at least five years (see BIM55630).

The legislation, although expressed in terms of farmers, applies to any person who keeps a production herd for the purposes of a trade even though that trade may not be farming, see BIM55565.