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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Europe: milk quota: introduction

In order to reduce the EC’s dairy production, EC regulations provide that each member state must pay a levy on milk production above the specified level. The figure for each producer is referred to as their `milk quota’. If milk is produced in excess of this figure, an EC levy must be paid at the point of sale. Milk quotas were first introduced in 1984. Milk Quotas are currently controlled by the Rural Payments Agency and can provide detailed information on the operation of the quota scheme.

A producer primarily holds milk quota to produce and sell milk profitably and not run the risk of a financial penalty for over-production. Such producers do not ordinarily buy and sell quota in the course of their day-to-day trade. Quota is an enduring capital asset of their business, in the same way as the buildings or farm machinery.

A quota is an asset in its own right for Capital Gains Tax purposes. A disposal of quota does not therefore represent a disposal or part disposal of either goodwill or land. This view was supported by the Special Commissioners’ decision in Cottle v Coldicott (HMIT), SpC 40/1995.

A producer may dispose of quota in a number of ways for example:

  • it may be surrendered voluntarily
  • it may be surrendered under a compulsory scheme
  • it may be cut as part of a general reduction in the amount of allocated quota
  • it may be disposed of to another producer.

The Rural Payments Agency can advise on the detail of the current arrangements that must be followed for the disposal or acquisition of milk quota.