Relief under extra-statutory concession ESCB11 (see the second sub-paragraph of BIM55180) should be allowed as follows:
Where an individual who is farming as a sole trader wishes to have the relief:
(* ‘following year of assessment' means a year of
assessment subsequent to that in which the slaughter took place,
and whose basis period does not include any part of the accounting
period in which the slaughter took place.)
Losses
Where a trading loss is sustained in the basis period for any
of those three following years, one third of the profit on
compensation should be included in the computation so as to reduce
the loss or, as the case may be, create a profit.
Trade ceasing
The normal practice is modified where, due to the cessation
of trading, there are less than three subsequent years of
assessment over which to spread the profit. If the trade is
permanently discontinued:
Example 1 (continuing trade)
In an established trade, slaughter takes place during the
accounting year ended 31 December 2000 and the taxpayer requests
spreading relief. The ‘profit on compensation' should be
deducted in computing the trading profit or loss of 2000-01 and
one-third should be added to the chargeable trading profits (or
deducted from the trading losses) for each of the years 2001-02,
2002-03 and 2003-04.
Example 2 (continuing trade, pre-self assessment and
including transitional period)
In an established trade, slaughter takes place during the
accounting year ended 31 December 1993 and the taxpayer requests
spreading relief. The ’profit on compensation' should be
deducted in computing the trading profit or loss of 1994-95 and
one-third should be added to the chargeable trading profits (or
deducted from the trading losses) for each of the years 1995-96,
1996-97 and 1997-98.
Example 3 (commencing trade)
A dairy farmer commences trading on 1 July 1998 and produces
accounts to 31 May annually.
Example 4 (ceasing trade)
Slaughter takes place during the accounting year ending 30
September 1998 and the trade ceases on 30 November 1999. If the
farmer requests spreading relief, the ‘profit on
compensation' is deducted in computing the profit or loss of the
accounting year and one half is added to the chargeable trading
profits (or deducted from the trading losses) for both 1998-99 and
1999-2000.
Example 5 (ceasing trade)
Slaughter takes place during the accounting year ending 30
September 1998 and the trade ceases on 30 November 2000. If the
farmer requests spreading relief, the ‘profit on
compensation' is deducted in computing the profit or loss of the
accounting year and one third is added to the chargeable trading
profits (or deducted from the trading losses) for 1998-99, 1999-
2000 and 2000-01.
Interaction between spreading relief and farmers’
averaging Adjustments for spreading relief should be made
before adjustments for farmers' averaging.
Under pre SA rules
Where farming is carried on by a partnership, which commenced
trading before 6 April 1994, and the slaughter, takes place during
or before the partnership accounting period ending in 1996-97,
spreading relief should be requested by the partnership. The
profits of the partnership as a whole should be adjusted in the
same way as those of a sole trader (see (A) above). In cases where
the commencement or cessation rules apply to particular partners
during the three year period over which the profit is spread you
should negotiate a reasonable basis of spreading which ensures that
the whole of the profit is taxed.
Under SA
Where farming is carried on by a partnership which commenced
trading on or after 6 April 1994, or in any case where the
slaughter takes place after the end of the partnership accounting
period ending in 1996-97, spreading relief should be requested by
the individual partner. The individual's share of the partnership
profits should be adjusted in the same way as those of a sole
trader (see (A) above) using the appropriate proportion of the
‘profit on compensation'.
The compensation profit should be excluded from the accounting period in which the slaughter takes place and treated as accruing evenly over the subsequent three accounting periods from the end of that accounting period or, if the farming trade should cease within the period, up to the date of cessation.
