Revenue Note for Guidance

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Revenue Note for Guidance

666 Deduction for increase in stock values

Summary

Provision is made in section 666 for stock relief, that is, for a deduction from farming trading income of an accounting period of 25 per cent of the increase in the value of trading stock in that accounting period. Stock relief may not be used to create or augment a loss. The relief must be claimed in writing on or before the return filing date for the period to which it relates and it applies to partnerships as well as to companies and individual farmers. The relief is only available in the case of a company for accounting periods ending on or before 31 December 2015 and in any other case for years of assessment up to and including 2015.

Details

The relief

If —

  • (1) a person is carrying on the trade of farming, and
  • the person’s closing trading stock value is greater than the opening stock value,

the person can claim a deduction of 25 per cent of the increase in computing the taxable profits from the trade of farming.

Example

Opening stock at 1 January 2011

20,000

Closing stock at 31 December 2011

25,000

Increase in value of trading stock

5,000

Farming profits of year ended 31 December 2011

6,000

Less stock relief (25% of increase in stock value)

1,250

Revised farming profits for 2011

4,750

Relief not to create a loss and restriction of other reliefs

(2)(a) A company’s stock relief deduction cannot create a loss, that is, it cannot exceed the company’s trading income for the accounting period as reduced by trading losses and excess charges (section 396) and terminal losses (section 397) and after taking into account any capital allowances and balancing charges (sections 307 and 308).

(2)(b) In addition, certain capital allowances and loss relief provisions do not operate where stock relief is granted to a company for an accounting period (“the relevant period”). The company is not entitled to a deduction under section 307 or 308 for any accounting period later than the relevant period in respect of any capital allowance treated as a trading loss of the trade before the commencement of the relevant period, or to a set-off under section 396 for any accounting period later than the relevant period in respect of a loss sustained in the trade before the commencement of the relevant period, or to a set-off under section 397 (terminal losses) for any accounting period earlier than the relevant period in respect of a terminal loss sustained in the trade.

(3) Similar provisions are provided for in relation to individuals who obtain stock relief for a year of assessment (“the relevant year”). Such individuals are not entitled to relief under section 382 for any year of assessment later than the relevant year in respect of a loss sustained in the trade before the commencement of the relevant year, or under section 385 (terminal losses) for any year of assessment earlier than the relevant year in respect of a loss sustained in the trade. Moreover, section 304(4) (carry forward of unused capital allowances) does not apply as respects capital allowances which are deemed to be capital allowances for the relevant year and to which full effect has not been given in that year, and section 392 (option to treat capital allowances as creating or augmenting a loss) does not apply to the capital allowances for the relevant year. Finally, stock relief cannot be used to create a loss for the relevant year.

End dates for relief

(4) Stock relief will not be available, in the case of a company, for accounting periods ending after 31 December 2015 and, in the case of individuals, later than the tax year 2015.

Time limit for claims

(5) A written claim for the relief must be made on or before the specified return date for the chargeable period.

Partnerships

(6) Stock relief is also available where the trade of farming is carried on by a partnership.

Relevant Date: Finance (No.2) Act 2013