Commentary on Sections Overview Overview
427.This Chapter gives the rules for what is commonly known as the “herd basis”. It is based on Schedule 5 to ICTA. The corresponding rules for income tax are in Chapter 8 of Part 2 of ITTOIA.
428.The object of the herd basis is to treat a herd of animals in a similar fashion to a capital asset. Without the election the individual animals in the herd would be treated as separate items of trading stock. With the election:
	there is no tax allowance for the initial cost of, or any subsequent increase in the size of, the herd;
	the net cost of replacing animals in the herd is allowable;
	any profit or loss on the sale of a single animal or a small number of animals from the herd without replacement is included in the profits of the trade; and
	if the whole, or a substantial part, of the herd is sold and not replaced the resulting profit or loss is not included in the profits of the trade.
429.An election can be made only in respect of animals kept for their produce.