Annex 1: Minor changes in the law made by the Act: Change 36: Herd basis elections: 5 year gap in which no production herd kept: section 125
This change gives statutory effect to the practice in paragraph 55630 of the Inland Revenue's Business Income Manual (BIM 55630).
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.
The Inland Revenue’s practice, set out in paragraph 55630 of the Business Income Manual (BIM 55630), is to allow the farmer to decide whether or not he or she wants the herd basis rules to 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 125 gives this practice statutory effect.
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 current practice.