BIM55510 - Farming: herd account: herd basis cost of animals
Until 2003 Inland Revenue guidance included the concept of the
“herd basis cost”. It was used to explain our
understanding of the law dealing with minor disposals without
replacement. Our view has changed and the concept is now redundant.
However, you may still come across the phrase. The
“herd basis cost” was the initial cost that was
disallowed for Case I purposes when the herd was first acquired, or
first came within the herd basis, or when an animal was added to
the herd. When an animal in the herd was replaced the cost of
replacement was an allowable deduction so the `herd basis cost' of
the new animal would be the same as that of the animal it replaced,
unless there was an element of improvement. The cost of any
additions to the herd (as opposed to replacements) and any
improvements were also included in the “herd basis
cost”.
- Where ”herd basis cost” is shown in the herd account the profit or loss on disposal will have two component parts: Sale proceeds less actual cost and should be dealt with as per BIM55535 - BIM55550
- Actual cost less ”herd basis cost”. This element is not taxable.
To avoid returning a higher taxable profit many accountants may wish to redraw the herd account to reflect actual cost.
