(1) This section has effect for the purposes of section 96A.
(2) Any question as to whether or to what extent expenditure is brought into account in calculating the profits of a trade is to be determined on such basis as is just and reasonable in all the circumstances.
(3) A person carrying on a trade “enters the cash basis” for a tax year if—
(a) the cash basis applies in relation to the trade for the tax year, and
(b) the cash basis did not apply in relation to the trade for the previous tax year.
(4) Expenditure is “cash basis deductible” in relation to a tax year if, on the assumption that the expenditure was paid in that tax year, a deduction would be allowed in respect of the expenditure in calculating the profits of the trade on the cash basis for that tax year.
(5) Expenditure is “brought into account under CAA 2001” in calculating the profits of a trade if and to the extent that—
(a) a capital allowance made under Part 2, 2A, 5, 6, 7 or 8 of that Act in respect of the expenditure is treated as an expense in calculating those profits (see, for example, section 247 of that Act), or
(b) qualifying expenditure (within the meaning of Part 2, 7 or 8 of CAA 2001) is allocated to a pool for the trade and is set-off against different disposal receipts.
(6) An amount of qualifying expenditure is “set-off against different disposal receipts” if—
(a) the amount would have been unrelieved qualifying expenditure carried forward in the pool for the trade, but
(b) the amount is not so carried forward because (and only because) one or more disposal values in respect of one or more assets, other than the asset in respect of which the qualifying expenditure was incurred (or treated as incurred), have at any time been brought into account in that pool.
(7) For the purposes of subsection (6), an amount of qualifying expenditure incurred (or treated as incurred) by a person is not to be regarded as not carried forward because the person enters the cash basis.
(8) In this section and in section 96A—
“disposal value” means—
in section 96A(3K)(c)—
a disposal value for the purposes of Part 2, 4A, 5, 6, 7 8 or 10 of CAA 2001 (for example, in relation to Part 2 of that Act, see (in particular) section 61 of that Act), or
proceeds from a balancing event for the purposes of Part 3 or 3A of that Act (see sections 316 and 360O of that Act), and
in subsection (6), a disposal value for the purposes of—
Part 2 of that Act (see, in particular, section 61 of that Act),
Part 7 of that Act (see section 462 of that Act), or
Part 8 of that Act (see sections 476 and 477 of that Act);
“market value amount” means the amount that would be regarded as normal and reasonable—
in the market conditions then prevailing, and
between persons dealing with each other at arm's length in the open market;
“pool” means—
the main pool or a class pool to which qualifying expenditure is allocated under Part 2 of CAA 2001 (see section 54 of that Act),
a pool to which qualifying expenditure is allocated under Part 7 of that Act (see section 456 of that Act), or
a pool to which qualifying expenditure is allocated under Part 8 of that Act (see section 470 of that Act);
“provision” includes creation, construction or acquisition;
“qualifying expenditure” means—
qualifying expenditure within the meaning of Part 2 of CAA 2001 (see section 11(4) of that Act for the general rule),
qualifying expenditure within the meaning of Part 5 of that Act (see section 395 of that Act),
qualifying expenditure within the meaning of Part 6 of that Act (see section 439 of that Act),
qualifying expenditure within the meaning of Part 7 of that Act (see section 454 of that Act), or
qualifying trade expenditure within the meaning of Part 8 of that Act (see section 468 of that Act);
“unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of—
Part 2 of CAA 2001 (see section 59(1) and (2) of that Act),
Part 7 of that Act (see section 461 of that Act), or
Part 8 of that Act (see section 475 of that Act).
(1) This section applies if—
(a) in calculating the profits of a trade, a deduction is allowed for the expense giving rise to a debt owed by the person carrying on the trade,
(b) all or part of the debt is released, and
(c) the release is not part of a statutory insolvency arrangement.
(2) The amount released—
(a) is brought into account as a receipt in calculating the profits of the trade, and
(b) is treated as arising on the date of the release.
97A Cash basis: value of trading stock on cessation of trade
(1) This section applies if—
(a) a person permanently ceases to carry on a trade in a tax year, and
(b) the cash basis applies in relation to the trade for the tax year.
(2) The value of any trading stock belonging to the trade at the time of the cessation is brought into account as a receipt in calculating the profits of the trade for the tax year.
(3) The value is to be determined on a basis that is just and reasonable in all the circumstances.
(4) If there is a change in the persons carrying on a trade, subsection (2) does not apply in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry it on after the change.
(5) In this section “trading stock” has the same meaning as in Chapter 12 (see section 174).
(6) This section does not apply to professions or vocations.
97B Cash basis: value of work in progress on cessation of profession or vocation
(1) This section applies if—
(a) a person permanently ceases to carry on a profession or vocation in a tax year, and
(b) the cash basis applies in relation to the profession or vocation for the tax year.
(2) The value of any work in progress at the time of the cessation is brought into account as a receipt in calculating the profits of the profession or vocation for the tax year.
(3) The value is to be determined on a basis that is just and reasonable in all the circumstances.
(4) If there is a change in the persons carrying on a profession, subsection (2) does not apply in relation to the profession so long as a person carrying on the profession immediately before the change continues to carry it on after the change.
(5) In this section “work in progress” has the same meaning as in Chapter 12 (see section 183).
98 Acquisition of trade: receipts from transferor's trade
(1) This section applies if —
(a) a person (“the transferor”) permanently ceased to carry on a trade at any time,
(b) at that time the transferor transferred to another person (“the transferee”) the right to receive sums arising from the carrying on of the trade, and
(c) the transferee subsequently carries on the transferor's trade.
(2) Sums—
(a) which the transferee receives as a result of the transfer, and
(b) which are not brought into account in calculating the profits of the transferor's trade for income or corporation tax purposes for any period before the cessation,
are brought into account in calculating the profits of the transferee's trade in the period of account in which they are received.
(3) Any sums mentioned in subsection (1)(b) which are received after the transferor has permanently ceased to carry on the trade are not post-cessation receipts (see Chapter 18).
(1) For the purposes of sections 101 and 102 a payment or other benefit is a reverse premium—
(a) if conditions A to C are met, and
(b) it is not excluded by section 100.
(2) Condition A is that a person (“the recipient”) receives the payment or other benefit by way of inducement in connection with a transaction being entered into by—
(a) the recipient, or
(b) a person connected with the recipient.
(3) Condition B is that the transaction (the “property transaction”) is one under which—
(a) the recipient, or
(b) the person connected with the recipient,
becomes entitled to an estate, interest or right in or over land.
(4) Condition C is that the payment or other benefit is paid or provided by—
(a) the person (“the grantor”) by whom the estate, interest or right is granted or was granted at an earlier time,
(b) a person connected with the grantor, or
(c) a nominee of, or a person acting on the directions of, the grantor or a person connected with the grantor.
(1) A payment or other benefit is not a reverse premium so far as it is brought into account under section 532 of CAA 2001 (the general rule excluding contributions) to reduce the recipient's expenditure qualifying for capital allowances.
(2) A payment or other benefit received in connection with a property transaction is not a reverse premium if—
(a) the person entering into the transaction is an individual, and
(b) the transaction relates to premises occupied or to be occupied by the individual as the individual's only or main residence.
(3) A payment or other benefit is not a reverse premium so far as it is consideration for the transfer of an estate or interest in land which constitutes the sale in a sale and lease-back arrangement.
(4) A “sale and lease-back arrangement” means any such arrangement as is described in section 681AA(1) or (2), 681AB(1) or (2) or 681BA of ITA 2007 or section 835(1) or (2) or 836(1) or (2) of CTA 2010.
(1) A reverse premium is treated for income tax purposes as a receipt of a revenue nature.
(2) If the recipient enters into the property transaction for the purposes of a trade carried on (or to be carried on) by the recipient, the reverse premium is brought into account in calculating the profits of the trade.
(3) If subsection (2) does not apply, the reverse premium is charged to income tax in accordance with section 311 (reverse premium taxed as property business receipt).
(1) This section applies if—
(a) two or more of the parties to the property arrangements are connected persons, and
(b) the terms of those arrangements are not such as would reasonably have been expected if those persons had been dealing at arm's length.
(2) The terms of the property arrangements meet the condition in subsection (1)(b) if they differ to a significant extent from the terms which, at the time the arrangements were entered into, would be regarded as normal and reasonable—
(a) in the market conditions then prevailing, and
(b) between persons dealing with each other at arm's length in the open market.
(3) The whole amount or value of the reverse premium brought into account under section 101 is brought into account in the first relevant period of account.
(4) “The first relevant period of account” means the period of account in which the property transaction is entered into.
(5) But if the recipient enters into the property transaction for the purposes of a trade—
(a) which is not then carried on by the recipient, but
(b) which the recipient subsequently starts to carry on,
“the first relevant period of account” means the first period of account in which the recipient carries on the trade.
For the purposes of this section and sections 99 to 102—
(a) persons are treated as connected with each other if they are connected (for which see section 878(5)) at any time during the period when the property arrangements are entered into, and
(b) “the property arrangements” means the property transaction and any arrangements entered into in connection with it (whether before it, at the same time as it or after it).
(1) This section applies if—
(a) a deduction has been allowed in calculating the profits of a trade for a payment to a mutual concern for the purposes of its mutual business,
(b) the concern is being or has been wound up or dissolved,
(c) a person (“the recipient”) who is carrying on the trade, or was doing so at the time of the payment, receives money or money's worth representing the concern's assets, and
(d) the assets in question represent profits of the mutual business conducted by the concern.
(2) If the recipient is carrying on the trade at the time the money or money's worth is received, the amount or value of the money or money's worth is brought into account as a receipt in calculating the profits of the trade.
(3) If the recipient—
(a) is not carrying on the trade at the time the money or money's worth is received, but
(b) was doing so at the time of the payment to the mutual concern,
the amount or value of the money or money's worth is treated as a post-cessation receipt (see Chapter 18).
(4) For the purposes of this section money or money's worth represents assets of a mutual concern if it—
(a) forms part of the assets of the concern,
(b) forms part of the consideration for the transfer of the assets of the concern as part of a scheme of amalgamation or reconstruction which involves its winding up, or
(c) consists of the consideration for a transfer or surrender of a right to receive anything falling within paragraph (a) or (b) and does not give rise to a charge to income tax on the person receiving it otherwise than as a result of this section.
(5) If a transfer or surrender of a right to receive anything which—
(a) forms part of the assets of a mutual concern, or
(b) forms part of the consideration for the transfer of the assets of a mutual concern,
is not at arm's length, the person making the transfer or surrender is treated as receiving consideration equal to the value of the right.
(6) In this section references to a mutual concern are to a body corporate which has at any time carried on a trade which consists of or includes the conduct of mutual business (whether or not confined to the members of the body corporate).
(7) For the purposes of this section a trade does not consist of or include the conduct of mutual business if all the profits of the trade are chargeable to income or corporation tax.
(1) This section applies if a person carrying on a trade receives a payment by way of a grant under—
(a) section 7 or 8 of the Industrial Development Act 1982 (c. 52), or
(b) Article 7, 9 or 30 of the Industrial Development (Northern Ireland) Order 1982 (S.I. 1982/1083 (N.I. 15)).
(2) The payment is brought into account as a receipt in calculating the profits of the trade unless—
(a) the grant is designated as made towards the cost of specified capital expenditure, (but see subsection (2A))
(b) the grant is designated as compensation for the loss of capital assets, or
(c) the grant is for all or part of a corporation tax liability (including one that has already been met).
(2A) Subsection (2)(a) is to be disregarded in calculating the profits of a trade on the cash basis.
(3) This section does not apply to professions or vocations.
(1) This section applies if—
(a) a deduction is allowed for a loss or expense in calculating the profits of a trade,
(b) a person carrying on the trade recovers a sum under an insurance policy or a contract of indemnity in respect of the loss or expense, and
(c) the sum is not of a revenue nature.
(2) The sum is brought into account as a receipt in calculating the profits of the trade (but only up to the amount of the deduction).
106C Amounts not reflecting commercial transactions
(1) This section applies if—
(a) the person does anything in relation to the trade (“the relevant act”),
(b) there is a difference between—
(i) the amount (if any) that, as a result of the relevant act, would (apart from this section) be brought into account in calculating the profits of the trade for the period, and
(ii) the amount (if any) that would have been so brought into account had the relevant act consisted of a transaction between the person and another person dealing with each other at arm's length in the open market (“the arm's length amount”), and
(c) the profits of the trade for the period are less than they would have been if the arm's length amount had been so brought into account.
(2) The amount to be brought into account in calculating the profits of the trade for the period is an amount that is just and reasonable in all the circumstances.
Section 106C does not apply in relation to the relevant act if subsection (4) or (5) of section 96A (capital receipts under, or after leaving, cash basis) applies in relation to that act.
Section 106C does not apply in relation to the relevant act if any of the provisions of Chapter 7 (trade profits: gifts to charities etc) applies in relation to that act.
(1) This section applies if a person carrying on a trade (“the donor”) gives an article for the purposes of—
(a) a charity, a registered club or a body listed in subsection (4), or
(b) a designated educational establishment (see section 110),
and the article is one manufactured, or of a class or description sold, by the donor in the course of the trade.
(2) In calculating the profits of the trade, no amount is required to be brought into account as a receipt in consequence of the disposal of the article.
(3) In this section “registered club” has the meaning given by section 658 of CTA 2010 (community amateur sports clubs).
(4) The bodies referred to in subsection (1)(a) are—
(a) the Trustees of the National Heritage Memorial Fund,
(b) the Historic Buildings and Monuments Commission for England,
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) This section —
(a) needs to be read with section 109 (receipt by donor or connected person of benefit attributable to certain gifts), and
(b) is subject to sections 809ZM and 809ZMB of ITA 2007 (removal of income tax relief in respect of tainted charity donations etc).
109 Receipt by donor or connected person of benefit attributable to certain gifts
(1) This section applies if a person carrying on a trade (“the donor”) makes a gift in relation to which—
(a) section 108 applies, or
(b) section 63(2) of CAA 2001 applies (gifts to charities etc. of plant or machinery used in the trade),
and the donor, or a person connected with the donor, receives a benefit which is in any way attributable to the making of the gift.
(2) An amount equal to the value of the benefit—
(a) is brought into account in calculating the profits of the trade, as a receipt of the trade arising on the date on which the benefit is received, or
(b) if the donor has permanently ceased to carry on the trade before that date, is treated as a post-cessation receipt (see Chapter 18).
110 Meaning of “designated educational establishment”
(1) For the purposes of section 108 “designated educational establishment” means an educational establishment designated, or within a category designated, in regulations made—
(a) for England and Scotland, by the Secretary of State,
(b) for Wales, by the National Assembly for Wales, and
(c) for Northern Ireland, by the Department of Education.
(2) The regulations may make different provision for different areas.
(3) If any question arises as to whether an educational establishment is within a category designated in the regulations, an officer of Revenue and Customs must refer the question for decision—
(a) in the case of an establishment in England or Scotland, to the Secretary of State,
(b) in the case of an establishment in Wales, to the National Assembly for Wales, and
(c) in the case of an establishment in Northern Ireland, to the Department of Education.
(4) The power of the Secretary of State or the National Assembly for Wales to make regulations under this section is exercisable by statutory instrument.
(5) A statutory instrument containing any regulations made by the Secretary of State under this section is subject to annulment in pursuance of a resolution of the House of Commons.
(6) Regulations made under this section by the Department of Education—
(a) are a statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)), and
(b) are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).
(1) A person who keeps or has kept a production herd for the purposes of a trade may make an election under this Chapter (a “herd basis election”).
(2) In calculating the profits of the trade, animals which are part of a production herd in relation to which a herd basis election has effect—
(a) are not treated as trading stock (see section 30), but
(b) are treated instead in accordance with sections 114 to 123 (“the herd basis rules”).
(3) This Chapter is expressed in terms of farmers but applies to any person who keeps or has kept a production herd for the purposes of a trade, whether or not the trade is farming.
(4) References in this Chapter to keeping a production herd are to keeping it for the purposes of the trade.
112 Meaning of “animal”, “herd”, “production herd” etc.
(1) In this Chapter—
(a) “animal” means any animal or other living creature,
(b) “herd” includes a flock and any other collection of animals (however named), and
(c) “production herd” means, in relation to a farmer, a herd of animals of the same species (irrespective of breed) kept by the farmer wholly or mainly for the products obtainable from the living animal which the animals produce for the farmer to sell.
(2) For this purpose “the products obtainable from the living animal” means—
(a) the young of the animal, or
(b) any other product obtainable from the animal without slaughtering it.
(3) For the purposes of this Chapter the general rule is that immature animals kept in a production herd are not part of the herd.
(4) There is an exception to this rule if—
(a) the nature of the land on which the herd is kept means that animals which die or cease to be part of the herd can be replaced only by animals bred and reared on the land,
(b) the immature animals in question are bred in the herd and are maintained in the herd for the purpose of replacing other animals, and
(c) it is necessary to maintain the immature animals for that purpose.
(5) In that case the immature animals are part of the herd for the purposes of this Chapter, but only so far as they are required to prevent a fall in the numbers of the herd.
(6) References in this Chapter to an animal being added to a herd include references to an immature animal that is not part of the herd reaching maturity.
(7) This Chapter applies—
(a) in relation to animals kept singly as it applies in relation to herds, and
(b) in relation to shares in animals as it applies in relation to animals themselves.
(1) This section applies for the purposes of this Chapter.
(2) A production herd kept by a farmer is of the same class as another production herd only if—
(a) the animals kept in both herds are of the same species (irrespective of breed), and
(b) the products produced for the farmer to sell (for which the herds are wholly or mainly kept) are of the same kinds in both herds.
(3) References to the sale of an animal include references to its death or destruction.
(4) References to the sale proceeds of an animal include references to—
(a) money received from an insurer because of the animal's death or destruction,
(b) compensation money received because of the animal's death or destruction, and
(c) the sale proceeds of the animal's carcass or any part of its carcass.
(5) Female animals become mature—
(a) in the case of laying birds, when they first lay, and
(b) in any other case, when they produce their first young.
(6) 20% or more of a herd is a substantial part of the herd, but a lesser percentage than 20% is capable of being a substantial part of the herd depending on the circumstances of the case concerned.
(1) In calculating the profits of the trade, no deduction is allowed for the initial cost of the herd.
(2) In calculating the profits of the trade, the value of the herd is not brought into account.
(1) This section applies for the purpose of calculating the profits of the trade if an animal is added to the herd, unless it replaces another animal in the herd.
(2) No deduction is allowed for the cost of the animal.
(3) If, immediately before it was added to the herd, the animal was part of the farmer's trading stock, the balancing amount is brought into account as a receipt.
(4) “The balancing amount” means—
(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and
(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.
(1) This section applies for the purpose of calculating the profits of the trade if—
(a) an animal (“the old animal”) is sold from the herd or otherwise ceases to be part of the herd, and
(b) it is replaced in the herd by another animal (“the new animal”).
(2) The sale proceeds (if any) of the old animal are brought into account as a receipt.
(3) But this needs to be read with—
(a) section 117 (amount of receipt if old animal slaughtered under disease control order),
(b) section 120 (acquisition of new herd begun within 5 years of sale), and
(c) section 122 (replacement of part sold begun within 5 years of sale).
(4) Except so far as otherwise allowable, a deduction is allowed under this section for the cost of the new animal.
(5) But if the new animal is of better quality than the old animal, the amount of the deduction must not exceed the amount that it would have been necessary to spend to replace the old animal with an animal of the same quality.
117 Amount of receipt if old animal slaughtered under disease control order
(1) This section applies for the purposes of section 116.
(2) If—
(a) the old animal was slaughtered under a disease control order, and
(b) the new animal is of worse quality than the old animal,
the amount brought into account as a receipt under section 116 must not exceed the equivalent amount for the new animal.
(3) For this purpose “a disease control order” means an order made under the law relating to the diseases of animals by—
(a) central government,
(b) a devolved authority,
(c) a local authority, or
(d) another public authority.
(4) If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—
(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and
(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.
(5) Otherwise “the equivalent amount for the new animal” means the cost of the new animal.
(1) This section applies for the purpose of calculating the profits of the trade if an animal is sold from the herd unless—
(a) it is replaced in the herd by another animal (see section 116), or
(b) it is sold as part of the sale of the whole or a substantial part of the herd that takes place all at once or over a period not longer than 12 months (see section 119).
(2) A profit arising from the sale is brought into account as a receipt.
(3) A deduction is allowed for a loss arising from the sale.
(4) The amount of the profit or loss is the difference between the sale proceeds of the animal and the deductible amount for the animal.
(5) “The deductible amount for the animal” means—
(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity,
(b) in the case of an animal acquired by the farmer for valuable consideration, the sum of the initial cost to the farmer of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity, and
(c) in the case of an animal acquired by the farmer but not for valuable consideration, the sum of the market value of the animal when acquired and the cost (if any) incurred by the farmer in rearing the animal to maturity.
(1) This section applies for the purpose of calculating the profits of the trade if, either all at once or over a period not longer than 12 months, the herd or a substantial part of the herd is sold unless—
(a) section 120 applies (acquisition of new herd begun within 5 years of sale), or
(b) section 122 applies (replacement of part sold begun within 5 years of sale),
but paragraph (a) is subject to subsection (5) of section 120 (so far as that section provides for a case in which this section is to apply).
(2) A profit arising from the sale is not brought into account as a receipt.
(3) No deduction is allowed for a loss arising from the sale.
120 Acquisition of new herd begun within 5 years of sale
(1) This section applies for the purpose of calculating the profits of the trade if—
(a) either all at once or over a period not longer than 12 months, the herd (“the old herd”) is sold, and
(b) the farmer acquires or starts to acquire another production herd of the same class (“the new herd”) within 5 years of the sale.
(2) Section 116 (replacement of animals in herd) applies as if a number of animals equal to—
(a) the number of animals in the old herd, or
(b) if smaller, the number of animals in the new herd,
had been sold from the old herd and replaced in that herd (but see section 121 (sale for reasons outside farmer's control)).
(3) For the purposes of section 116, the sale proceeds of an animal that is treated as a result of subsection (2) above as if it had been—
(a) sold from the old herd, and
(b) replaced in that herd by another animal (“the new animal”),
are not brought into account as a receipt until the new animal is acquired.
(4) If—
(a) the number of animals in the new herd is smaller than the number of animals in the old herd, and
(b) the difference is not substantial,
section 118 (sale of animals from herd) applies as if a number of animals equal to the difference had been sold from the old herd.
(5) If the number of animals in the new herd is smaller than the number of animals in the old herd and the difference is substantial—
(a) section 119 (sale of whole or substantial part of herd where replacement not begun within 5 years), or
(b) section 122 (sale of substantial part of herd where replacement begun within 5 years),
applies as if a number of animals equal to the difference had been sold from the old herd.
(6) If the number of animals in the new herd is larger than the number of animals in the old herd, section 115 (addition of animals to herd) applies as if a number of animals equal to the difference had been added to the old herd.
(7) For the purposes of this section—
(a) if the difference between the number of animals in the new herd and the number of animals in the old herd is equal to 20% or more of the number of animals in the old herd, the difference is substantial, but
(b) a lesser percentage than 20% is capable of being a substantial difference depending on the circumstances of the case concerned.
121 Section 120: sale for reasons outside farmer's control
(1) This section applies for the purposes of section 116, as applied by section 120(2).
(2) If—
(a) the farmer was compelled to sell the old herd for reasons wholly outside the farmer's control, and
(b) an animal (“the new animal”) that is treated as a result of section 120(2) as if it replaced an animal sold (“the old animal”) is of worse quality than the old animal,
the amount brought into account as a receipt under section 116 must not exceed the equivalent amount for the new animal.
(3) If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—
(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and
(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.
(4) Otherwise “the equivalent amount for the new animal” means the cost of the new animal.
122 Replacement of part sold begun within 5 years of sale
(1) This section applies for the purpose of calculating the profits of the trade if—
(a) either all at once or over a period not longer than 12 months, a substantial part of the herd is sold, and
(b) the farmer acquires or starts to acquire animals to replace the part sold within 5 years of the sale.
(2) Section 116 (replacement of animals in herd) applies so far as the animals included in the part sold are replaced (but see section 123 (sale for reasons outside farmer's control)).
(3) The sale proceeds of an animal included in the part sold are not brought into account as a receipt until the animal that replaces it in the herd is acquired.
(4) If some of the animals included in the part sold are not replaced—
(a) a profit arising from their sale is not brought into account as a receipt, and
(b) no deduction is allowed for a loss arising from their sale.
123 Section 122: sale for reasons outside farmer's control
(1) This section applies for the purposes of section 116, as applied by section 122(2).
(2) If—
(a) the farmer was compelled to sell the part of the herd for reasons wholly outside the farmer's control, and
(b) an animal (“the new animal”) that replaces an animal sold (“the old animal”) is of worse quality than the old animal,
the amount brought into account as a receipt under section 116 must not exceed the equivalent amount for the new animal.
(3) If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—
(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and
(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.
(4) Otherwise “the equivalent amount for the new animal” means the cost of the new animal.
(1) A herd basis election must specify the class of production herd to which it relates.
(2) A herd basis election must be made—
(a) on or before the first anniversary of the normal self-assessment filing date for the tax year in which the first relevant period of account ends, or
(b) if that is the tax year in which the farmer starts to carry on the trade and the farmer is not a firm, on or before the second anniversary of the normal self-assessment filing date for that tax year.
(3) “The first relevant period of account” means the first period of account in which the farmer making the election keeps a production herd of the class to which the election relates (but see subsection (8)).
(4) A herd basis election cannot relate to more than one class of production herd, but separate elections may be made for different classes.
(5) A herd basis election is irrevocable.
(6) A herd basis election has effect in relation to all production herds of the class to which it relates, including any which the farmer—
(a) has ceased to keep before making the election, or
(b) first keeps after making the election.
(7) A herd basis election has effect for every period of account in which the farmer—
(a) carries on the trade, and
(b) keeps a production herd of the class to which the election relates.
(8) If the farmer is a firm and there is a change in the persons who are partners in the firm—
(a) any herd basis election made by the old firm ceases to have effect, and
(b) in relation to the new firm, “the first relevant period of account” means the first period of account in which the new firm keeps a production herd of the class to which the election relates.
125 Five year gap in which no production herd kept
(1) This section applies if a farmer—
(a) keeps a production herd of a particular class, and
(b) ceases altogether to keep herds of that class for a period of at least 5 years.
(2) If the farmer keeps a production herd of that class after the end of that period—
(a) the period of account in which the farmer starts to keep the herd is treated as the first period of account in which the farmer keeps a production herd of that class, and
(b) any herd basis election previously made by the farmer in relation to production herds of that class ceases to have effect.
(1) This section applies if—
(a) the whole or a substantial part of a production herd kept by a farmer is slaughtered under a disease control order, and
(b) the circumstances of the slaughter are such that compensation is payable in respect of the animals slaughtered.
(2) The farmer may make a herd basis election in respect of the class of production herd involved in the slaughter as if the period of account —
(a) in which the compensation falls to be brought into account in calculating the profits of the trade, or
(b) in which it would (but for the election) fall to be so brought into account,
were the first period of account in which the farmer keeps a production herd of that class.
(3) An election made as a result of this section has effect for that period of account and every subsequent period of account in which the farmer—
(a) carries on the trade, and
(b) keeps a production herd of the class to which the election relates.
(4) In this section “disease control order” means an order made under the law relating to the diseases of animals by—
(a) central government,
(b) a devolved authority,
(c) a local authority, or
(d) another public authority.
(1) This section applies if—
(a) a person carrying on a trade (the “transferor”) transfers the whole or part of a production herd to another person (the “transferee”),
(b) the transfer is not by way of sale or is by way of sale but for a price other than that which the animals sold would have fetched if sold in the open market, and
(c) the control condition or herd basis benefit condition is met.
(2) The control condition is met if—
(a) the transferor is a body of persons over which the transferee has control,
(b) the transferee is a body of persons over which the transferor has control, or
(c) both the transferor and transferee are bodies of persons and another person has control over both of them.
(3) For this purpose “body of persons” includes a firm.
(4) The herd basis benefit condition is met if—
(a) the transferor or transferee (or both) might (but for this section) have been expected to obtain a herd basis benefit as a result of the transfer or the transactions of which the transfer is one, and
(b) the herd basis benefit is the sole or main benefit, or one of the main benefits, that the person in question might have been expected to obtain.
(5) For this purpose a “herd basis benefit” is a benefit resulting from—
(a) the obtaining of a right to make a herd basis election,
(b) the herd basis rules applying or not applying, or
(c) the herd basis rules having a greater or lesser effect.
(6) For the purpose of calculating the profits of—
(a) the trade carried on by the transferor, and
(b) any trade carried on by the transferee,
the animals transferred are treated as having been sold at the price which they would have fetched if sold in the open market.