BIM55505 - Farming: operation of herd basis: main rules

Where a herd basis election is in force, the treatment for the purpose of computing farming profits under Case I of Schedule D of the herd or herds covered by the election is governed by the special rules contained in ICTA88/SCH5/PARA3. These rules, which are described in detail in BIM55530 - BIM55560, can be summarised very briefly as follows-

• The initial cost of the herd is not an allowable deduction, nor is the cost of any subsequent increase in herd size.
• The net cost of replacing animals in the herd is an allowable deduction.
• Where the odd animal, or just a few animals, are sold from the herd and not replaced, the resulting profit or loss is taken into account in arriving at the farming profits.
• Where the whole herd, or a substantial part of the herd, is sold and not replaced, the resulting profit or loss is not taken into account.

There are further special rules for particular situations. And the operation of the rules is often complicated by the fact that many farmers breed their own herd replacements and additions.

A quick reference guide to help determine which rule applies in a particular situation is provided at BIM55515.