Farm animals are valued for tax in one of two ways, and the choice can move your taxable profit by thousands. This guide explains the herd basis, how trading stock is valued, and where you need an accountant.
By default, farm animals are trading stock, valued at the lower of cost and net realisable value at each year end. A farmer who keeps a production herd or flock, such as breeding cows or ewes, can instead elect for the herd basis. The herd is then treated much like a capital asset: its initial cost is not deductible, net replacement costs are, and profit on selling the whole herd is tax-free. The election names a class of animal, has a time limit, and cannot be revoked. It rules out cash basis. Take it to your accountant first.
Farm animals are trading stock unless you choose otherwise. HMRC's manual describes the herd basis as an optional way of treating production animals kept for their products or offspring rather than for resale. A farmer must elect for it.
Once elected, the herd sits outside trading stock and is handled much like a capital asset. The cost of maintaining the herd can be charged against tax, and any profit on its eventual disposal is tax-free. The trade-off, per the manual summary of the main rules, is that the initial cost of the herd, and the cost of growing it, are not deductible.
In practice the difference shows when numbers change. Under trading stock, a bigger herd at year end raises closing stock and therefore profit. Under the herd basis the herd is not valued year by year. Which suits you is accountant territory.
Anyone with a herd basis election is excluded from the cash basis. See our guide to cash basis and traditional accounting for farmers.
In plain terms, suckler cows, dairy herds and breeding ewes can qualify. Excluded are animals kept mainly for fattening or slaughter, animals added temporarily and then sold, a flying herd or flock where animals are continually bought in and sold on, working animals, animals kept for exhibition or competition, and most immature animals. Store and finishing cattle never qualify.
Classes matter. A herd basis election must name the class of herd, and one election covers every herd of that class. A class is the same species producing the same kind of product, so a dairy herd and a suckler herd are separate classes needing separate elections. Heafted hill sheep flocks have special rules, so ask your accountant.
The election must name the class of herd and be made within the time limit. It normally takes effect from when you first started keeping a production herd of that class. Keep a copy of whatever you send HMRC.
The time limit is short, which is the usual trap. Per the manual on time limits:
An example, which your accountant should check: if the first period of account ends in the 2025 to 2026 tax year, the normal filing date is 31 January 2027, so a sole trader's deadline is 31 January 2028. You also need traditional accounting, not the cash basis.
No. HMRC's manual says an election for the herd basis is irrevocable, and it continues indefinitely for the class it covers. That is the strongest reason to take advice before electing.
It ends in two ways. If you cease to keep a herd of that class for at least five years, a later herd does not carry the old election, but you get a fresh right of election. Or the election is invalidated if the production herd ceases to be kept for the purposes specified in the election.
A change of purpose is the one to watch. Get your accountant's view on the tax treatment before you change what a herd is kept for, not after. Partnership changes have their own rules, so if you join, leave or reform a partnership, do not assume an existing election carries over.
Restocking within five years of a major sale triggers further rules, so ask before you rebuild. Keep the dates behind each sale; see the holding register guide.
Most livestock farms stay on trading stock. HMRC's helpsheet 232, reproduced in its stock valuation manual, says the figure is the cost or, if lower, the net realisable value. The valuation must be on a normal commercial basis, not a forced sale, and cull value cannot be the only future revenue from production animals. Livestock should be valued animal by animal, though similar animals can be grouped by age.
Where actual cost cannot be worked out from your records, HMRC accepts deemed cost for home-bred or home-reared stock: 60% of open market value for cattle and 75% for sheep and pigs. It should not be used for bought animals if it falls below the purchase price plus rearing costs, and it covers only cattle, sheep, pigs and harvested crops. Valuing at open market value each year is accepted if applied consistently, but may bring profit into tax earlier.
Be consistent. If you change your basis of valuation, HMRC expects you to tell it, so agree the change with your accountant first. Our guide to farm bookkeeping and HMRC records covers year-end stock records.
Get an accountant for each of these: whether to elect and for which class, getting the election in on time, any change of herd purpose, a major sale or restocking, a partnership change, and any change to your valuation method. A wrong call on the herd basis cannot be reversed. This guide is general information, not tax advice.
Your job is the facts. For each class, keep animal numbers at each year end, the date each home-bred animal joined the herd, purchase prices and dates, rearing costs, and the dates and proceeds of every sale and replacement.
Averaging interacts here: a herd basis election bars the cash basis, and the cash basis bars averaging, so check how farmers' averaging works first. For Making Tax Digital, see our sign-up and quarterly updates guide.
FarmHQ is a farm office app for UK cattle and sheep farms, in beta, where Ask Farmer Joe drafts and you confirm. It keeps animal numbers and dates in one place, but gives no tax advice. See FarmHQ pricing.
The herd basis is an optional election for farmers who keep a production herd or flock. The animals are treated much like a capital asset rather than trading stock. The cost of maintaining the herd is deductible, profit on selling it is tax-free, and the initial cost of the herd is not deductible. It is irrevocable.
No. HMRC's manual excludes animals kept mainly for fattening or slaughter, flying herds where animals are bought in and sold on, and most immature animals. The herd basis is for breeding or milk-producing animals kept for their products or offspring, such as suckler cows, dairy cows and breeding ewes.
A sole trader has until the first anniversary of the normal Self Assessment filing date for the tax year containing the end of the first period of account in which the herd is kept, or the second if it is their first trading year. A partnership has 12 months from that filing date. Ask your accountant to check the date.
As trading stock, at the lower of cost and net realisable value. Where actual cost cannot be worked out, deemed cost for home-bred cattle is 60% of open market value, and 75% for sheep and pigs. Be consistent and tell HMRC if you change your method.
No. HMRC's manual excludes anyone with a herd basis election from calculating profits on the cash basis. You need traditional accounting. Your accountant should confirm how this fits with any averaging claim, which also cannot be made on the cash basis.