Corporation Tax Bill

House of Commons

Session 2008 - 09
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Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 7 — Trade profits: gifts to charities etc
44

(6)
A statutory instrument containing any regulations made by the Welsh
Ministers under this section is subject to annulment in pursuance of a
resolution of the National Assembly for Wales.
(7)
Regulations made under this section by the Department of Education—
(a)
are a statutory rule for the purposes of the Statutory Rules (Northern
5
Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)), and
(b)
are subject to negative resolution within the meaning of section 41(6) of
the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).
107
Gifts of medical supplies and equipment
(1)
This section applies if—
10
(a)
a company carrying on a trade makes a gift from trading stock of
medical supplies or medical equipment,
(b)
it makes the gift for humanitarian purposes, and
(c)
the supplies or equipment are for human use.
(2)
In calculating the profits of the trade, no amount is required to be brought into
15
account as a receipt in consequence of the gift.
(3)
In calculating the profits of the trade, a deduction is allowed for any costs of
transportation, delivery or distribution incurred by the company in making the
gift.
(4)
The deduction is allowed for the accounting period in which the costs are
20
incurred.
(5)
The Treasury may by order provide that this section is not to have effect in
relation to medical supplies or medical equipment of any description specified
in the order.
(6)
This section needs to be read with section 108 (receipt of benefits by donor or
25
connected person).
Benefits associated with gifts
108
Receipt of benefits by donor or connected person
(1)
This section applies if a company carrying on a trade makes a gift in relation to
which relief is given under—
30
(a)
section 105,
(b)
section 107(2), or
(c)
section 63(2) of CAA 2001 (gifts to charities etc of plant or machinery
used in the trade),

and the company, or a person connected with the company, receives a benefit
35
which is in any way attributable to the making of the gift.
(2)
This section also applies if—
(a)
relief is given under section 107(3) for costs of transportation, delivery
or distribution incurred by a company carrying on a trade, and
(b)
the company, or a person connected with the company, receives a
40
benefit which is in any way attributable to the company’s incurring of
those costs.

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
45

(3)
An amount equal to the value of the benefit—
(a)
is brought into account in calculating the profits of the trade, as a
receipt of the trade arising in the accounting period in which the benefit
is received, or
(b)
if the company has permanently ceased to carry on the trade before the
5
benefit is received, is treated as a post-cessation receipt (see Chapter
15).
Chapter 8
Trade profits: herd basis rules
Introduction
10
109
Election for application of herd basis rules
(1)
A company, or a firm of which a company is a member, which keeps or has
kept a production herd for the purposes of a trade may make an election under
this Chapter (a “herd basis election”).
(2)
In calculating the profits of the trade, animals which are part of a production
15
herd in relation to which a herd basis election has effect—
(a)
are not treated as trading stock (see section 50), but
(b)
are treated instead in accordance with sections 112 to 121 (“the herd
basis rules”).
(3)
This Chapter is expressed in terms of farmers but applies to any company, or
20
firm of which a company is a member, which keeps or has kept a production
herd for the purposes of a trade, whether or not the trade is farming.
(4)
References in this Chapter to keeping a production herd are to keeping it for
the purposes of the trade.
110
Meaning of “animal”, “herd”, “production herd” etc
25
(1)
In this Chapter—
(a)
“animal” means any animal or other living creature,
(b)
“herd” includes a flock and any other collection of animals (however
named), and
(c)
“production herd” means, in relation to a farmer, a herd of animals of
30
the same species (irrespective of breed) kept by the farmer wholly or
mainly for the products obtainable from the living animal which the
animals produce for the farmer to sell.
(2)
For this purpose “the products obtainable from the living animal” means—
(a)
the young of the animal, or
35
(b)
any other product obtainable from the animal without slaughtering it.
(3)
For the purposes of this Chapter the general rule is that immature animals kept
in a production herd are not part of the herd.
(4)
There is an exception to this rule if—

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
46

(a)
the nature of the land on which the herd is kept means that animals
which die or cease to be part of the herd can be replaced only by
animals bred and reared on the land,
(b)
the immature animals in question are bred in the herd and are
maintained in the herd for the purpose of replacing other animals, and
5
(c)
it is necessary to maintain the immature animals for that purpose.
(5)
In that case the immature animals are part of the herd for the purposes of this
Chapter, but only so far as they are required to prevent a fall in the numbers of
the herd.
(6)
References in this Chapter to an animal being added to a herd include
10
references to an immature animal that is not part of the herd reaching maturity.
(7)
This Chapter applies—
(a)
in relation to animals kept singly as it applies in relation to herds, and
(b)
in relation to shares in animals as it applies in relation to animals
themselves.
15
111
Other interpretative provisions
(1)
This section applies for the purposes of this Chapter.
(2)
A production herd kept by a farmer is of the same class as another production
herd only if—
(a)
the animals kept in both herds are of the same species (irrespective of
20
breed), and
(b)
the products produced for the farmer to sell (for which the herds are
wholly or mainly kept) are of the same kinds in both herds.
(3)
References to the sale of an animal include references to its death or
destruction.
25
(4)
References to the sale proceeds of an animal include references to—
(a)
money received from an insurer because of the animal’s death or
destruction,
(b)
compensation money received because of the animal’s death or
destruction, and
30
(c)
the sale proceeds of the animal’s carcass or any part of its carcass.
(5)
Female animals become mature—
(a)
in the case of laying birds, when they first lay, and
(b)
in any other case, when they produce their first young.
(6)
20% or more of a herd is a substantial part of the herd, but a lesser percentage
35
than 20% is capable of being a substantial part of the herd depending on the
circumstances of the case concerned.
The herd basis rules
112
Initial cost of herd and value of herd
(1)
In calculating the profits of the trade, no deduction is allowed for the initial cost
40
of the herd.

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
47

(2)
In calculating the profits of the trade, the value of the herd is not brought into
account.
113
Addition of animals to herd
(1)
This section applies for the purpose of calculating the profits of the trade if an
animal is added to the herd, unless it replaces another animal in the herd.
5
(2)
No deduction is allowed for the cost of the animal.
(3)
If, immediately before it was added to the herd, the animal was part of the
farmer’s trading stock, the balancing amount is brought into account as a
receipt.
(4)
“The balancing amount” means—
10
(a)
in the case of an animal bred by the farmer, the cost of breeding the
animal and rearing it to maturity, and
(b)
in any other case, the sum of the initial cost of acquiring the animal and
the cost (if any) incurred by the farmer in rearing the animal to
maturity.
15
114
Replacement of animals in herd
(1)
This section applies for the purpose of calculating the profits of the trade if—
(a)
an animal (“the old animal”) is sold from the herd or otherwise ceases
to be part of the herd, and
(b)
it is replaced in the herd by another animal (“the new animal”).
20
(2)
The sale proceeds (if any) of the old animal are brought into account as a
receipt.
(3)
But this needs to be read with—
(a)
section 115 (amount of receipt if old animal slaughtered under disease
control order),
25
(b)
section 118 (acquisition of new herd begun within 5 years of sale), and
(c)
section 120 (replacement of part sold begun within 5 years of sale).
(4)
Except so far as otherwise allowable, a deduction is allowed under this section
for the cost of the new animal.
(5)
But if the new animal is of better quality than the old animal, the amount of the
30
deduction must not exceed the amount that it would have been necessary to
spend to replace the old animal with an animal of the same quality.
115
Amount of receipt if old animal slaughtered under disease control order
(1)
This section applies for the purposes of section 114.
(2)
If—
35
(a)
the old animal was slaughtered under a disease control order, and
(b)
the new animal is of worse quality than the old animal,

the amount brought into account as a receipt under section 114 must not
exceed the equivalent amount for the new animal.
(3)
For this purpose “a disease control order” means an order made under the law
40
relating to the diseases of animals by—

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
48

(a)
central government,
(b)
a devolved authority,
(c)
a local authority, or
(d)
another public authority.
(4)
If, immediately before it was added to the herd, the new animal was part of the
5
farmer’s trading stock, “the equivalent amount for the new animal” means—
(a)
in the case of an animal bred by the farmer, the cost of breeding the
animal and rearing it to maturity, and
(b)
in any other case, the sum of the initial cost of acquiring the animal and
the cost (if any) incurred by the farmer in rearing the animal to
10
maturity.
(5)
Otherwise “the equivalent amount for the new animal” means the cost of the
new animal.
116
Sale of animals from herd
(1)
This section applies for the purpose of calculating the profits of the trade if an
15
animal is sold from the herd unless—
(a)
it is replaced in the herd by another animal (see section 114), or
(b)
it is sold as part of the sale of the whole or a substantial part of the herd
that takes place all at once or over a period not longer than 12 months
(see section 117).
20
(2)
A profit arising from the sale is brought into account as a receipt.
(3)
A deduction is allowed for a loss arising from the sale.
(4)
The amount of the profit or loss is the difference between the sale proceeds of
the animal and the deductible amount for the animal.
(5)
“The deductible amount for the animal” means—
25
(a)
in the case of an animal bred by the farmer, the cost of breeding the
animal and rearing it to maturity,
(b)
in the case of an animal acquired by the farmer for valuable
consideration, the sum of the initial cost to the farmer of acquiring the
animal and the cost (if any) incurred by the farmer in rearing the animal
30
to maturity, and
(c)
in the case of an animal acquired by the farmer but not for valuable
consideration, the sum of the market value of the animal when
acquired and the cost (if any) incurred by the farmer in rearing the
animal to maturity.
35
117
Sale of whole or substantial part of herd
(1)
This section applies for the purpose of calculating the profits of the trade if,
either all at once or over a period not longer than 12 months, the herd or a
substantial part of the herd is sold unless—
(a)
section 118 applies (acquisition of new herd begun within 5 years of
40
sale), or
(b)
section 120 applies (replacement of part sold begun within 5 years of
sale),

but paragraph (a) is subject to subsection (5) of section 118 (so far as that section
provides for a case in which this section is to apply).
45

Corporation Tax Bill
Part 3 — Trading income
Chapter 8 — Trade profits: herd basis rules
49

(2)
A profit arising from the sale is not brought into account as a receipt.
(3)
No deduction is allowed for a loss arising from the sale.
118
Acquisition of new herd begun within 5 years of sale
(1)
This section applies for the purpose of calculating the profits of the trade if—
(a)
either all at once or over a period not longer than 12 months, the herd
5
(“the old herd”) is sold, and
(b)
the farmer acquires or starts to acquire another production herd of the
same class (“the new herd”) within 5 years of the sale.
(2)
Section 114 (replacement of animals in herd) applies as if a number of animals
equal to—
10
(a)
the number of animals in the old herd, or
(b)
if smaller, the number of animals in the new herd,

had been sold from the old herd and replaced in that herd (but see section 119
(sale for reasons outside farmer’s control)).
(3)
For the purposes of section 114, the sale proceeds of an animal that is treated as
15
a result of subsection (2) above as if it had been—
(a)
sold from the old herd, and
(b)
replaced in that herd by another animal (“the new animal”),

are not brought into account as a receipt until the new animal is acquired.
(4)
If—
20
(a)
the number of animals in the new herd is smaller than the number of
animals in the old herd, and
(b)
the difference is not substantial,

section 116 (sale of animals from herd) applies as if a number of animals equal
to the difference had been sold from the old herd.
25
(5)
If the number of animals in the new herd is smaller than the number of animals
in the old herd and the difference is substantial—
(a)
section 117 (sale of whole or substantial part of herd where replacement
not begun within 5 years), or
(b)
section 120 (sale of substantial part of herd where replacement begun
30
within 5 years),

applies as if a number of animals equal to the difference had been sold from the
old herd.
(6)
If the number of animals in the new herd is larger than the number of animals
in the old herd, section 113 (addition of animals to herd) applies as if a number
35
of animals equal to the difference had been added to the old herd.
(7)
For the purposes of this section—
(a)
if the difference between the number of animals in the new herd and
the number of animals in the old herd is equal to 20% or more of the
number of animals in the old herd, the difference is substantial, but
40
(b)
a lesser percentage than 20% is capable of being a substantial difference
depending on the circumstances of the case concerned.