R&DTax Reliefs
HERD BASIS
Understanding the herd basis for taxation
Working in agriculture requires specific accounting and tax treatments. Albert Goodman director Tom Stone explains the herd basis of taxation
At a glance
The long-term advantage of the herd basis comes at disposal, where profit can be tax-free
The ongoing basis cost for maintaining the herd can be charged against tax
When farm accounts are prepared at the end of each year, generally the animals held are treated as trading stock. However, for many years farmers have had the option of putting productive herds onto what is known as the ‘herd basis’ and treating them as a long term capital asset instead.
Whether operating as a sole trader, a partnership or a limited company, a farmer can adopt the herd basis for tax purposes. An irrevocable election specifying the animal(s) must be made to use the regime.
What is a productive herd?
‘Production herd’ means a collection of animals, or other living creatures, of the same species (irrespective of breed) kept by a farmer or trader wholly or mainly for the products which they produce for him to sell, being products obtainable from the living animal. Effectively therefore it relates to the breeding animals held rather than the youngstock.
Some examples of eligible production herds include:
• Dairy herd
• Sucker beef herd
• Breeding flock
• Laying hens
• Sheep kept for fleece production
• Horses kept for breeding
What is excluded?
However, there are some exclusions, where the herd basis cannot be used including:
• Working animals
• Animals kept wholly or mainly for public exhibition
• Horses kept for racing
• Flying flocks (kept for resale)
• Immature animals
• Animals kept only for fattening and slaughter
How do I make an election?
An election for the herd basis must:
1. Be made in writing
2. Specify the class of herds to which it relates
3. Be within the statutory time limit (see below).
“Whether operating as a sole trader, a partnership or a limited company, a farmer can adopt the herd basis.”
Tom Stone, director, Albert Goodman
HERD BASIS ELECTION
Time limits for election
A herd basis election must be made in writing to HMRC. The time limit for making the election is:
• In the case of a sole trader, the first anniversary after the normal self-assessment filing date for the tax year which contains the end of the first period of account in which the trader keeps a production herd of the specified class.
• In the case of a partnership, twelve months after the normal self-assessment filing date for the tax year which contains the end of the first period of account during which the partnership kept a production herd.
• In the case of a company, two years from the end of the first accounting period during which the company kept a production herd of the specified class.
An additional year is allowed if the year in which the herd is first kept is also the year in which the farming activities first began, for example a new entrant into farming.
The election is irrevocable and so great care must be taken and advice sought when making that decision.
The herd basis election is not available to businesses that have had flocks and herd for many years unless there is a partnership change – so the decision must be made at the outset.
HERD BASIS