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.