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HMRC internal manual

VAT Valuation Manual

HM Revenue & Customs
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Specific applications: Memorandum of agreement with the British Horseracing Board


This memorandum records several agreements reached between Customs and Excise and the Council of the Thoroughbred Breeders Association (TBA) on the VAT treatment of persons involved in breeding, training and dealing in horses used for racing. It also sets out the current methods of accounting for output VAT on racehorses applied to personal use by the owner/breeder.

The following Memorandum of Practice has been agreed in the hope of establishing guidelines within which the Bloodstock Industry and HM Customs and Excise can work in order to establish the value for each stud and each stallion upon which VAT would have to be calculated.


Racehorses applied permanently to personal or other non-business use

From 16 March 1993 the previous method of accounting for output tax on the cost of racehorses applied permanently to training and racing for no consideration is less likely to apply. However, when a racehorse is bred within the Single Market and is permanently applied to the personal use of the owner/breeder, or a horse is found unsuitable for breeding purposes and subsequently given away free of charge, the tax value will be the cost to the person making the supply. It has been agreed with the TBA that, in the case of yearlings, the value for VAT is the sum of the following elements of cost:

(i) The stallion service fee;

(ii) Veterinary fees on the foal from birth;

(iii) The total cost of keep of the mare for the year of gestation;

(iv) The cost of keep of the foal from date of weaning to date of application to personal use; and

(v) Any other VATable payments.

When no stallion service fee is paid (or a nomination to the stallion is not purchased), with effect from 1 January 1987, you may allow the figure of £275. The trader should use the same figure when nominations are exchanged without a cash consideration or when any such consideration is less than £275. The rates to be used in subparagraphs (iii) and (iv) are based on those recommended by the NSFA for the keeping of foaling mares on a stallion stud.

Breeders who wish to adopt an alternative method of calculating the cost to them of making the supply may do so. However, the method adopted must take account of the formula for costing the supply of a yearling as agreed with the Council of the TBA. The cost is determined by taking the stallion fee, or a fixed sum where no stallion fee is actually paid, and adding the costs relating to the mare for one year (the year of gestation), the costs relating to the yearling itself from weaning until the time of transfer to training and any veterinary fees, or other VATable costs which may be incurred. Depreciation of the mare’s value is not taken into account. The figures used in the calculation are revised from time to time to accord with current values. Actual figures for each year’s calculation can be obtained from:

The Secretary
The Thoroughbred Breeders’ Association
Stanstead House ‎
8 The Ave

Tel 01638 661321

Racehorses applied temporarily to training/racing or leased at no consideration

Where an owner/breeder applies a racehorse temporarily to training/racing (either for personal private purposes or for those of another person) but ownership of the horse is retained as an asset of the business, there is a taxable supply of services. It has been agreed with the TBA that, in the case of yearlings, the cost of such services is to be based on 1/8 per annum of its cost of production (ie 1/32 part of the cost for each quarterly period of temporary application), calculated in accordance with the formula in the above paragraph. In the case of an older horse, the cost to be used is that of the animal at the yearling stage.

Keeping of stallions at stud

From 1 August 1992, the wording of section 10(3) VATA 1983 on determining the value of a supply for a non-monetary consideration was modified to accord more precisely with the European law. Section 19(3) VATA 1994 (formerly S10(3) of the 1983 Act as amended in 1992) no longer refers to the term “open market value”. The value of a non-monetary consideration is to be determined by establishing the amount of money for which it is substituting.

Where a stallion is kept at stud, the services of keep are often paid for in whole or part by transferring to the stud one or more nominations to the stallion. There is thus a consideration not in money, or not wholly in money, within section 19(3) of the VAT Act 1994. The value of this non-monetary consideration will be what you would have had to have paid in money for the supply of keep. Since this value is difficult to determine, an agreement has been reached with the TBA on a method of calculating the value by reference to the price in money (if any) plus the value of the nominations up to an agreed maximum charge for the year.

Exchange of nominations

Where a stallion nomination is exchanged or bartered there are two separate supplies and tax must be accounted for, under the normal rules, on the established nomination fee.

  1. Where there is a charge for keeping a stallion to the stallion syndicate or stallion owner, expressed only in cash terms and “free” nominations are not involved, no negotiations will be necessary so long as HMRC are satisfied that the cash charge represents the normal price you would have to pay for the supply and there is no non-monetary consideration.
  2. Where there is no charge for keeping a stallion expressed as payable in cash and only “free” nominations are involved, or where there is a combination of cash plus “free” nominations, a value will have to be established for the keep of the stallion. This will take into account:
(a) The values of the free nominations as shown by their sales by the stallion stud, or if no sales have taken place (e.g. where used for own mares), by reference to average reported sales values. The VAT on the calculated value of the services supplied by the stud should be accounted for quarterly, i.e. having established the value of the service for a year, 25% of the value and the relevant VAT will be brought to account in the normal quarterly returns.  

(b) There are various types of contract for nominations. To arrive at the value of a nomination for the purposes of this Memorandum, the following formula should be used:
  Straight Nomination 100% of the figure from 2(a)
  1st October Pregnancy Nomination 70% of the figure from 2(a)
  Split Payment Nomination 100% of the first payment from 2(a)
    70% of the second payment from 2(a)
  Live Foal Nomination 60% of the figure from 2(a)
The effective value of the service supplied by the stud will be the sum of the above plus any charge made in cash.  

(c) A maximum figure has been agreed with the TBA to be applied annually. This maximum will operate when the value of the nominations (or cash plus the nominations) arrived at as in 2(a) and 2(b) above exceeds the agreed figure. The maximum has been set at £30,000.   

The agreement should make it possible for stallion studs to assess the proper value of the services in keeping the stallion(s) and to account for VAT accordingly. The local VAT office should be consulted in the event of any problems arising from the implementation of these arrangements.