If an animal in the herd -
and
the resulting profit or loss is to be taken into account in
arriving at the farming profits.
For this purpose, the profit or loss is measured by reference
to the sale proceeds (including, in the case of death, any
insurance or compensation moneys) of the animal, and its cost. If
the animal entered the herd as a replacement, the cost to be used
will already have been allowed as a deduction when it entered the
herd (see
BIM55535). That is irrelevant. The two
computations are different.
Cost means:
Where it is not possible to ascertain the actual cost of
breeding and rearing, deemed cost (BEN19 part 7, reproduced at
BIM55410) may be used.
Cost should be ascertained from the farmer’s records.
The introduction of strict animal movement records for disease
control purposes gives the farmer a better opportunity to satisfy
his obligation to create and maintain adequate records. If the
disposed animal’s cost cannot be ascertained from the
farmer’s records the amount to be deducted from the sale
proceeds will need to be agreed or determined, in the absence of
agreement, by the commissioners.
Brian has been a dairy farmer since 2000 when he started off with 80 cows purchased for £800 per head. He increased the herd to 100 cows in 2001 at a cost of £18000 and spent a further £15000 adding an additional 15 cows in 2002. A herd basis election has been in force throughout and the herd account at 31 May 2002 shows:-
| 80 cows @ £800 | £64,000 |
| 20 cows @ £900 | £18,000 |
| 15 cows @ £1000 | £15,000 |
| Total (115 animals) | £97,000 |
During the year ended 31 May 2003 he sells 10 cows for £1,200 each and does not replace them. He identifies that the animals disposed of were acquired for £900 each. The sale of 10 cows out of a herd of 115 does not amount to a substantial reduction in the herd. In practice, where the herd records kept by the farmer are not sufficiently detailed to allow particular animals to be identified and where there is an absence of evidence pointing to some other alternative being preferable, actual cost may be taken to be equal to the BEN 19 formula applied to the sale proceeds received.
| Proceeds 10 cows @ £1,200 | £12,000 |
| Cost 10 cows @ £900 | £9,000 |
| Profit | £3,000 |
The £3,000 profit is included in the computation of Brian's
farming profit for the year.
The herd account of the herd at 31 May 2003 is-
| 80 cows @ £800 | £64,000 |
| 10 cows @ £900 | £9,000 |
| 15 cows @ £1,000 | £15,000 |
| Total (105 animals) | £88,000 |
The disposal of 10 cows should be reflected in the trading and consequently no adjustment in the tax computation is required.
Where animals are in the herd account at "herd basis cost" see BIM55510.
