Annex 1: Minor changes in the law made by the Act: Change 37: Herd basis elections: slaughter under disease control order: section 126
This change relates to the time limit for making a herd basis election under paragraph 6 of Schedule 5 to ICTA if the whole or a substantial part of a production herd is slaughtered under a disease control order.
An election must normally be made within a specified time based on when the farmer first keeps a production herd. Paragraph 6(1) of Schedule 5 to ICTA modifies the ordinary time limit for making a herd basis election if the whole or a substantial part of a production herd is slaughtered under a disease control order.
For farmers except those trading in partnership paragraph 6(2)(a) of Schedule 5 to ICTA provides the election must be made “not later than twelve months from the 31st January next following the qualifying year of assessment”. That year is then defined by paragraph 6(4) of Schedule 5 to ICTA as the first year of assessment for which the amount of the profits or losses of the trade are calculated “by reference to the facts of a period in which the compensation is relevant”.
For firms the position is slightly different. Paragraph 6(2)(b) of Schedule 5 to ICTA provides the election must be made “not later than twelve months from the 31st January next following the year of assessment in which the qualifying period of account ends”. Paragraph 6(4) of Schedule 5 to ICTA defines the “qualifying period of account” as “the first period of account in which the compensation is relevant”.
Paragraph 6(5) of Schedule 5 to ICTA provides that compensation is deemed to be relevant in any period if is “taken into account as a trading receipt in computing the profits or losses of that or an earlier period”.
Section 126 merges the two rules. This change of approach simplifies the law by having a common rule for all farmers. It sets the time limit for all farmers in the same way as for a firm by reference to first period of account in which the compensation is relevant. In most cases this rule gives the same time limit as that in paragraph 6(2)(a) of Schedule 5 to ICTA. But it may benefit some taxpayers by giving them longer to make the election if the compensation is received in a period of account that is longer than 12 months.
This change is in line with the approach adopted for the rewrite of the ordinary time limits in paragraph 2 of Schedule 5 to ICTA. Section 124 has a single rule for elections by all farmers. See Change 34.
	ExampleThe accounts of an established farming business are made up for the period 1 January 2005 to 30 June 2006. No herd basis election is in place. In September 2005 compensation is received for a production herd slaughtered under a disease control order.Unless the farmer is trading in partnership the time limit for making an election is 31 January 2008. The qualifying year of assessment is the tax year 2005-06. The 31 January next following this year is 31 January 2007. The election must be made within 12 months of that date.If the farmer is a firm the time limit for making the election is 31 January 2009. The qualifying period of account ends on 30 June 2006. This ends in the tax year 2006-07. The 31 January next following this year is 31 January 2008. The election must be made within 12 months of that date.
In principle and in practice this change may benefit some taxpayers by giving them longer to make the election. But it has no implications for the amount of income liable to tax or who is liable for tax on it.