{
  "url": "https://openlegislation.uk/income-and-corporation-taxes-act-1988/schedule-5/paragraph-3",
  "json_url": "https://openlegislation.uk/income-and-corporation-taxes-act-1988/schedule-5/paragraph-3.json",
  "legislation": "ukpga/1988/1",
  "legislation_title": "Income and Corporation Taxes Act 1988",
  "legislation_url": "https://openlegislation.uk/income-and-corporation-taxes-act-1988",
  "path": "schedule/5/paragraph/3",
  "kind": "paragraph",
  "number": "3",
  "heading": null,
  "text": "(1) Where an election for the herd basis has effect, the consequences for the purposes of computing profitschargeable to corporation tax under Case I of Schedule D shall be as provided by this paragraph.\n(2) The initial cost of the herd and, subject to the provisions of this paragraph as to replacements, the cost of any animal added to the herd shall not be deducted as an expense and the value of the herd shall not be brought into account.\n(3) Where an animal which has theretofore been treated as part of the farmer’s trading stock is added to the herd otherwise than by way of replacement, there shall be included as a trading receipt—\n(a) in the case of an animal bred by the farmer, a sum equal to the cost of breeding it and rearing it to maturity; and\n(b) in any other case, a sum equal to the initial cost to the farmer of acquiring the animal, together with any cost incurred by the farmer in rearing it to maturity.\n(4) Where an animal (the “first animal”) forming part of the herd dies, or ceases to form part of the herd, and is replaced in the herd by another animal (the “second animal”)—\n(a) any proceeds of sale of the first animal shall be included as a trading receipt; and\n(b) the cost of the second animal, except in so far as that cost consists of such costs as are allowable apart from the provisions of this Schedule as deductions in computing profits of farming under Case I of Schedule D, shall, subject to sub-paragraphs (5) and (6) below, be deducted as an expense.\n(5) Where the second animal is of better quality than the first animal, the amount deducted shall not exceed the amount which it would have been necessary to expend in order to acquire an animal of the same quality as the first animal.\n(6) Where the first animal was slaughtered by the order of any Ministry, government department or local or public authority under the law relating to diseases of animals, and the second animal is of worse quality, the amount included as a trading receipt shall not exceed the amount allowable as a deduction.\n(7) Where the herd is sold as a whole, and another production herd of the same class is acquired, sub-paragraphs (1) to (6) above shall apply as though there had been sold from, and replaced in, the original herd a number of animals equal to the number in the original herd or in the newly acquired herd, whichever is the less.\n(8) Subject to sub-paragraph (9) below, if (either all at once or over a period not exceeding 12 months) either—\n(a) the whole of a herd is sold in circumstances in which sub-paragraph (7) above does not apply, or\n(b) a part of a herd is sold on a substantial reduction being made in the number of animals in the herd,\nany profit or loss arising from the transaction shall not be taken into account.\n(9) Where within five years of the sale the seller acquires or begins to acquire another production herd of the class in question or, as the case may be, acquires or begins to acquire animals to replace the part of the herd in question—\n(a) sub-paragraphs (4) to (7) above shall apply to the acquisition or replacement, except that, if the sale was one which the seller was compelled to effect by causes wholly beyond the seller's control, the amount included as a trading receipt in respect of any animal sold which is replaced by an animal of worse quality shall not exceed the amount allowable as a deduction in respect of that animal of worse quality; and\n(b) for the purpose of the application of those sub-paragraphs, the proceeds of sale of the animals comprised in the original herd or part of a herd shall be brought into account as if they had been respectively received at the times of the corresponding acquisitions.\n(10) If an animal forming part of the herd is sold, and none of sub-paragraphs (4) to (9) above applies, any profit or loss arising from the transaction shall be included or deducted, as the case may be; and for the purposes of this sub-paragraph, that profit or loss shall be computed by comparing with the proceeds of sale—\n(a) in the case of an animal bred by the farmer, the cost of breeding it and rearing it to maturity; and\n(b) in any other case, a sum equal to the initial cost to the farmer of acquiring the animal (or in the case of an animal acquired otherwise than for valuable consideration, its market value when the farmer acquired it) together, in both cases, with any cost incurred by the farmer in rearing it to maturity.\n(11) Where the herd is sold as a whole, and another production herd of the same class is acquired, and the number of animals in the newly acquired herd is less than the number in the original herd, then, if the difference is not substantial, sub-paragraphs (8) and (9) above shall not apply, and sub-paragraph (10) above shall apply to a number of animals in the original herd equal to the difference.\n(12) The preceding provisions of this paragraph shall apply in relation to the death or destruction of animals as they apply in relation to their sale, as if any insurance or compensation moneys received by reason of the death or destruction were proceeds of sale, and any reference in this paragraph to the proceeds of sale of an animal includes a reference to any proceeds of sale of its carcase or any part of its carcase.",
  "extent": "E+W+S+N.I.",
  "status": null,
  "version": "current",
  "annotations": [
    {
      "type": "F",
      "label": "F1",
      "text": "Words in Sch. 5 para. 3(1)(4)(b) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a)(b), Sch. 7 para. 1"
    },
    {
      "type": "F",
      "label": "F2",
      "text": "Words in Sch. 5 para. 3(1) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 343(4)(a) (with Sch. 2)"
    },
    {
      "type": "F",
      "label": "F3",
      "text": "Words in Sch. 5 para. 3(3)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 343(4)(b) (with Sch. 2)"
    },
    {
      "type": "F",
      "label": "F4",
      "text": "Words in Sch. 5 para. 3(9)(a) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 343(4)(c) (with Sch. 2)"
    },
    {
      "type": "F",
      "label": "F5",
      "text": "Words in Sch. 5 para. 3(10)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 343(4)(d) (with Sch. 2)"
    }
  ],
  "outstanding_effects": [],
  "provenance": {
    "source": "legislation.gov.uk",
    "source_url": "https://www.legislation.gov.uk/ukpga/1988/1/schedule/5/paragraph/3",
    "retrieved_at": "2026-10-29T09:49:54.309394+00:00"
  },
  "licence": "Open Government Licence v3.0",
  "licence_url": "https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/",
  "attribution": "Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives."
}