Annex 1: Minor Changes in the Law Change 32: Trading income: herd basis elections: five year gap in which no production herd kept: section 123
This change gives statutory effect to the practice in paragraph 55630 of the HMRC Business Income Manual (BIM 55630).
It brings the income tax and corporation tax codes back into line.
Paragraph 4 of Schedule 5 to ICTA provides a special rule for herd basis elections where there is a gap of at least five years when the farmer does not keep a production herd of a particular class. The farmer is treated as never having kept such a production herd at all.
This approach sits oddly with the rule in paragraph 2(4) of Schedule 5 to ICTA that a herd basis election is irrevocable. It is not clear which rule has priority.
HMRC practice is to allow the farmer to decide whether or not the herd basis rules continue to apply. This is achieved by ignoring the previous election for the purposes of allowing the farmer to make a fresh election: farmers can either make a fresh election or do nothing. Section 123 gives this practice statutory effect.
This change allows the taxpayer to select the basis of taxation.
This change is in the taxpayer’s favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.