What is the herd basis?

There are special rules which can apply to farmers and market gardeners that prepare their accounts on an accruals basis. This includes special rules for farmers’ averaging relief, dealing with losses and the treatment of compensation for compulsory slaughter.

The special rules also refer to the use of the herd basis. The herd basis is a special method of working out profits or losses which may be used by people who keep production livestock. Usually, farm animals are treated as trading stock. However, under the herd basis a herd or flock of production animals is excluded from trading stock and treated, in most but not all circumstances, like a capital asset.

Any farmer that wishes to use the herd basis must elect to do so. Where a herd basis election is in force, the treatment for the purpose of calculating farming profits of the herd or herds covered by the election is governed by special rules. The herd basis rule can also apply where animals are jointly owned, for example, in some share-farming arrangements.

Planning note

These special rules do not apply to farmers and market gardeners who work out their profits using the cash basis of accounting rather than the accruals basis. If you would like more information about this scheme, and how it may benefit your tax position, please call for a consultation. 

Posted in HMRC notices

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