F1F1SCHEDULE 5
Farming: the general rule
1
(1)
(2)
Animals forming part of production herds with respect to which an election under paragraph 2 below has effect shall not be so treated, but shall be treated instead in accordance with the rules set out in paragraph 3 below.
(3)
An election under paragraph 2 below is referred to in this Schedule as “an election for the herd basis”.
Farming: election for the herd basis
2
(1)
An election for the herd basis shall apply to all production herds of a particular class kept by the farmer making the election, including herds which F5the farmer has ceased to keep before, or first begins to keep after, the making of the election.
(2)
An election for the herd basis must be made in writing to the inspector, and must specify the class of herds to which it relates.
(3)
Subject to paragraphs 6 and 12 below, an election for the herd basis made by any farmer shall be valid only if it is made F6—
(a)
F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b)
in the case of an election on behalf of persons in partnership, not later than twelve months from the 31st January next following the year of assessment in which the qualifying period of account ends; and
(c)
in the case of an election by a person chargeable to corporation tax, not later than two years from the end of the qualifying accounting period.
(4)
An election for the herd basis made by any farmer shall be irrevocable and, subject to paragraph 6 below, shall have effect—
(b)
in a case falling within sub-paragraph (3)(b) above, for the qualifying period of account and all subsequent periods of account; and
(c)
in a case falling within sub-paragraph (3)(c) above, for the qualifying accounting period and all subsequent accounting periods.
F9(5)
F7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
In this paragraph—
F10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“qualifying accounting period”, in relation to a person chargeable to corporation tax, means the first accounting period during the whole or part of which it kept a production herd of the class in question;
“qualifying period of account”, in relation to persons in partnership, means the first period of account during the whole or part of which those persons kept such a herd;
F10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
(1)
(2)
The initial cost of the herd and, subject to the provisions of this paragraph as to replacements, the cost of any animal added to the herd shall not be deducted as an expense and the value of the herd shall not be brought into account.
(3)
Where an animal which has theretofore been treated as part of the farmer’s trading stock is added to the herd otherwise than by way of replacement, there shall be included as a trading receipt—
(a)
in the case of an animal bred by the farmer, a sum equal to the cost of breeding it and rearing it to maturity; and
(b)
in any other case, a sum equal to the initial cost to the farmer of acquiring the animal, together with any cost incurred by F14the farmer in rearing it to maturity.
(4)
Where an animal (the “first animal”) forming part of the herd dies, or ceases to form part of the herd, and is replaced in the herd by another animal (the “second animal”)—
(a)
any proceeds of sale of the first animal shall be included as a trading receipt; and
(b)
the cost of the second animal, except in so far as that cost consists of such costs as are allowable apart from the provisions of this Schedule as deductions in computing F12profits of farming under Case I of Schedule D, shall, subject to sub-paragraphs (5) and (6) below, be deducted as an expense.
(5)
Where the second animal is of better quality than the first animal, the amount deducted shall not exceed the amount which it would have been necessary to expend in order to acquire an animal of the same quality as the first animal.
(6)
Where the first animal was slaughtered by the order of any Ministry, government department or local or public authority under the law relating to diseases of animals, and the second animal is of worse quality, the amount included as a trading receipt shall not exceed the amount allowable as a deduction.
(7)
Where the herd is sold as a whole, and another production herd of the same class is acquired, sub-paragraphs (1) to (6) above shall apply as though there had been sold from, and replaced in, the original herd a number of animals equal to the number in the original herd or in the newly acquired herd, whichever is the less.
(8)
Subject to sub-paragraph (9) below, if (either all at once or over a period not exceeding 12 months) either—
(a)
the whole of a herd is sold in circumstances in which sub-paragraph (7) above does not apply, or
(b)
a part of a herd is sold on a substantial reduction being made in the number of animals in the herd,
any profit or loss arising from the transaction shall not be taken into account.
(9)
Where within five years of the sale the seller acquires or begins to acquire another production herd of the class in question or, as the case may be, acquires or begins to acquire animals to replace the part of the herd in question—
(a)
sub-paragraphs (4) to (7) above shall apply to the acquisition or replacement, except that, if the sale was one which the seller was compelled to effect by causes wholly beyond F15the seller's control, the amount included as a trading receipt in respect of any animal sold which is replaced by an animal of worse quality shall not exceed the amount allowable as a deduction in respect of that animal of worse quality; and
(b)
for the purpose of the application of those sub-paragraphs, the proceeds of sale of the animals comprised in the original herd or part of a herd shall be brought into account as if they had been respectively received at the times of the corresponding acquisitions.
(10)
If an animal forming part of the herd is sold, and none of sub-paragraphs (4) to (9) above applies, any profit or loss arising from the transaction shall be included or deducted, as the case may be; and for the purposes of this sub-paragraph, that profit or loss shall be computed by comparing with the proceeds of sale—
(a)
in the case of an animal bred by the farmer, the cost of breeding it and rearing it to maturity; and
(b)
in any other case, a sum equal to the initial cost to the farmer of acquiring the animal (or in the case of an animal acquired otherwise than for valuable consideration, its market value when the farmer acquired it) together, in both cases, with any cost incurred by F16the farmer in rearing it to maturity.
(11)
Where the herd is sold as a whole, and another production herd of the same class is acquired, and the number of animals in the newly acquired herd is less than the number in the original herd, then, if the difference is not substantial, sub-paragraphs (8) and (9) above shall not apply, and sub-paragraph (10) above shall apply to a number of animals in the original herd equal to the difference.
(12)
The preceding provisions of this paragraph shall apply in relation to the death or destruction of animals as they apply in relation to their sale, as if any insurance or compensation moneys received by reason of the death or destruction were proceeds of sale, and any reference in this paragraph to the proceeds of sale of an animal includes a reference to any proceeds of sale of its carcase or any part of its carcase.
Farming: provisions applicable to special cases
4
A farmer who, having kept a production herd of a particular class, ceases altogether to keep herds of that class for a period of at least five years shall, as respects production herds kept by F17the farmer after the end of that period, be treated as if F17the farmer had never kept any production herds of that class before the end of that period.
5
(1)
Where a farmer transfers to another person all or any of the animals which form part of a production herd otherwise than by way of sale or by way of sale but for a price other than that which they would have fetched if sold in the open market, and either—
(a)
the transferor is a body of persons over whom the transferee has control or the transferee is a body of persons over whom the transferor has control or both the transferor and the transferee are bodies of persons and some other person has control over both of them; or
(b)
it appears with respect to the transfer, or with respect to transactions of which the transfer is one that the sole or main benefit, or one of the main benefits, which (apart from the provisions of this paragraph) might have been expected to accrue to the parties or any of them was a benefit resulting from—
(i)
the obtaining of a right to make an election for the herd basis, or
(ii)
such an election having effect or ceasing to have effect, or
(iii)
such an election having a greater effect or a less effect;
(2)
In this paragraph “body of persons” includes a partnership, and “control” has the meaning given by section 840.
6
(1)
Where the whole or a substantial part of a production herd kept by a farmer for the purposes of F20its farming is slaughtered by the order of any Ministry, government department or local or public authority under the law relating to the diseases of animals in such circumstances that compensation is payable in respect of it, an election for the herd basis thereupon made by the farmer in relation to that herd and any other production herds of the same class so kept by F21the farmer shall, subject to sub-paragraph (2) below, be valid notwithstanding that it is not made within the time required by paragraph 2(3) above.
F22(2)
An election for the herd basis made by virtue of sub-paragraph (1) above shall only be valid if made—
(a)
F23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b)
in the case of an election on behalf of persons in partnership, not later than twelve months from the 31st January next following the year of assessment in which the qualifying period of account ends; and
(c)
in the case of an election by a person chargeable to corporation tax, not later than two years from the end of the qualifying accounting period.
(3)
An election for the herd basis made by virtue of sub-paragraph (1) above shall, notwithstanding paragraph 2(4) above, have effect—
(a)
F23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b)
in a case falling within sub-paragraph (2)(b) above, for the qualifying period of account and all subsequent periods of account; and
(c)
in a case falling within sub-paragraph (2)(c) above, for the qualifying accounting period and all subsequent accounting periods.
(4)
In this paragraph—
F24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“qualifying accounting period”, in relation to a person chargeable to corporation tax, means the first accounting period in which the compensation is relevant;
“qualifying period of account”, in relation to persons in partnership, means the first period of account in which the compensation is relevant;
F25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)
For the purposes of this paragraph, compensation shall be deemed to be relevant in any period if, but only if, it falls (or would but for an election under this paragraph fall) to be taken into account as a trading receipt in computing the F26profits or losses of that or an earlier period.
Exclusion of working animals, and interpretation of preceding provisions
7
Nothing in this Schedule applies to any animals kept wholly or mainly for the work they do in connection with the carrying on of the farming.
8
(1)
In this Schedule “herd” includes a flock, and any other collection of animals however named.
(2)
For the purposes of this Schedule, immature animals kept in a herd shall not be treated as forming part of the herd unless—
(a)
the land on which the herd is kept is such that animals which die or cease to form part of the herd cannot be replaced except by animals bred and reared on that land; and
(b)
the immature animals in question are bred in the herd, are maintained in the herd for the purpose of replacement, and are necessarily maintained for that purpose;
and references in this Schedule to herds shall be construed accordingly.
(3)
References in this Schedule to an animal being added to a herd include references to an immature animal which is kept in the herd becoming a mature animal except that not more immature animals shall be treated as forming part of a herd than are required to prevent a fall in the numbers of the herd.
(4)
Female animals shall be treated for the purposes of this Schedule as becoming mature when they produce their first young.
(5)
In this sub-paragraph “products obtainable from the living animal” means—
(a)
the young of the animal, or
(b)
any other product obtainable from the animal, not being a product obtainable only by slaughtering the animal itself.
(6)
For the purposes of this Schedule, production herds kept by a farmer shall be deemed to be of the same class if, and only if, all the animals kept in the herds are of the same species (irrespective of breed) and the products produced for F27the farmer to sell for the sake of which (either wholly or mainly) the herds are kept by F27the farmer are of the same kinds in the case of all the herds; and elections for the herd basis shall be framed accordingly.
(7)
Application of preceding provisions to trades other than farming, creatures other than animals, and animals and creatures kept singly
9
(1)
The preceding provisions of this Schedule shall, with the necessary adaptations, apply in relation to trades other than farming, and trades consisting only in part of farming as they apply in relation to farming, and references to farmers shall be construed accordingly.
(2)
Those provisions shall (both in relation to farming and in relation to other trades) apply in relation to living creatures other than animals as they apply in relation to animals.
(3)
Laying birds shall be treated for the purposes of this Schedule as becoming mature when they first lay.
(4)
The provisions of this Schedule shall (both in relation to farming and in relation to other trades) apply, with the necessary adaptations F31—
(a)
in relation to animals or other creatures kept singly as they apply in relation to herds; and
(b)
in relation to shares in animals or other creatures as they apply in relation to animals or other creatures themselves.
(5)
Nothing in this Schedule shall apply in relation to any animal or other creature kept wholly or mainly for public exhibition or for racing or other competitive purposes.
Supplemental and saving
10
Where an election for the herd basis is made, every person carrying on any farming or other trade affected by the election shall, if required to do so by notice from the inspector, make and deliver to the inspector, within the time specified in the notice, such returns as to, and as to the products of, the animals or other creatures kept by him for the purposes of the trade as may be required by the notice.
11
Where an election for the herd basis has effect for any F32accounting period after an assessment for that period has become final and conclusive, any such assessment or, on a claim therefor, repayment of tax shall be made as may be necessary to give effect to the election.
12
The validity of an election for the herd basis in force immediately before the commencement of this Schedule and made in pursuance of—
(a)
section 35 of the Finance Act 1973 on or after 25th July 1973 and before 6th April 1976, or
(b)
section 48(6) to (9) of the Finance Act 1984,
shall not be affected by the repeal of those sections by this Act.