Farm animals and crops on hand at the year end are trading stock, valued at the lower of cost and net realisable value. Where a farmer’s records cannot show actual cost, HMRC accepts a “deemed cost” of 60% of open market value for cattle, 75% for sheep and pigs and 75% for harvested crops, but only for home bred or home reared stock, and never where actual cost can be found or the result would not be a reasonable estimate of cost.
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Why do livestock and crops need a value at the year end?
Section 30 of the Income Tax (Trading and Other Income) Act 2005, and section 50 of the Corporation Tax Act 2009 for companies, treats animals kept for a trade as trading stock unless they are kept wholly or mainly for the work they do, for public exhibition or for racing or competition, or form part of a herd covered by a herd basis election. BIM55425 notes that the statute puts this beyond doubt. Growing and harvested crops are stock under ordinary principles.
Helpsheet 232, reproduced in HMRC’s Business Income Manual at BIM55410, explains why the figure affects profit: valuing stock carries forward costs incurred before the year end that will only produce income later, so that they are matched with that income. If closing stock is left out, profit is understated. The general rules are covered in our guide to stock valuation; this page deals with the farm specific methods. Sole traders and partnerships on the cash basis, now the default, record income and expenses only when money is received or paid, and a farmer with a herd basis election cannot use the cash basis; see cash basis versus accruals.
What counts as cost for livestock and crops?
Helpsheet 232 defines production cost as the actual cost of getting the stock into its condition and location at the balance sheet date. Direct costs must be included. Examples given are:
- Livestock: purchase cost or insemination costs plus extra maternal feed above maintenance, then rearing costs to the valuation date or maturity if earlier, including feed and forage, vets’ fees and medicines, ringing, cutting and dehorning, and supervisory or contract labour.
- Growing and harvested crops: seed, fertiliser, beneficial sprays, seasonal licence payments for fields hired for a single crop (but not normal farm rent), drying, storage, and labour and direct machinery costs of cultivation, crop working and harvesting.
Indirect costs, such as depreciation and maintenance of farm buildings, rent and rates and general labour and machinery costs, may be included. Helpsheet 232 says including them is preferable but not mandatory, except for certain limited companies, and either approach is accepted if applied consistently. No notional cost may be included for the farmer’s own labour as a sole trader or partner.
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When can deemed cost be used?
Only when actual cost cannot be ascertained from the farmer’s records. Helpsheet 232 expects larger and specialised units, such as intensive pig rearing, to have records good enough to work out cost. Where they do not exist, HMRC accepts these percentages of open market value as a reasonable estimate of cost:
| Stock | Deemed cost |
|---|---|
| Cattle | 60% of open market value |
| Sheep and pigs | 75% of open market value |
| Harvested crops (deadstock) | 75% of open market value at the balance sheet date |
The livestock percentages apply only to home bred or home reared animals, or animals bought some time before maturity and matured on the farm. For bought in animals, deemed cost must not be less than the purchase price plus, for animals bought immature, the rearing costs since purchase. Helpsheet 232 says HMRC may review the percentages if the relationship between cost and market value changes.
Which stock is outside the deemed cost method?
BIM55420 limits the method to cattle, sheep, pigs and harvested crops. In particular:
- Growing crops are not covered; they are valued at the actual direct costs, such as seed, fertiliser, sprays and cultivation, incurred to the year end.
- Other species, such as poultry or goats, are not covered. HMRC may accept a similar method in a particular case, but only for that case and not as a precedent.
- Pedigree stock should not be valued this way where it would not give a reasonable estimate of cost.
- Thoroughbred horses are excluded. Working horses can be treated as stock or as fixed assets; if treated as fixed assets, BIM55440 accepts 85% of current market value as the cost of a home bred horse added to the working horses.
How is open market value measured?
For production animals, open market value assumes a willing buyer and willing seller of the animal as a production animal, free from restrictions such as movement controls. Cull value is not acceptable, because it ignores the income still to come from produce or progeny. Animals of similar type and quality may be valued together by age group, but home bred animals must be kept separate from bought in animals where deemed cost is used. Immature and unweaned animals can be valued at deemed cost using the market value of similar animals of the same age, and mother and young should be valued together where that is the unit sold.
One exception: where the mother is on the herd basis and there is little or no market in the unweaned young, such as lambs at foot, deemed cost is not appropriate. Leaving the young out entirely is not acceptable either; their production costs must be carried forward. Our guide to the herd basis election explains which animals sit outside trading stock altogether.
When does net realisable value replace cost?
If there is no reasonable expectation that the sale proceeds will cover costs, stock is valued at net realisable value: expected proceeds on a normal commercial basis, not a forced sale at the year end, plus related subsidies and, for breeding animals, income from future progeny or produce, less the costs still to be incurred. Because few farmers have the records to calculate this precisely, Helpsheet 232 accepts two shortcuts:
- for production animals usually sold only for slaughter at the end of their productive life, such as laying hens and breeding sows, writing cost down to expected cull value on a straight line or other suitable basis over the productive life;
- for other production animals, the open market value of animals of the same kind, quality and condition.
Where a subsidy has been claimed for identified animals but not yet recognised as income, BIM55430 says it should be added to market value when computing deemed cost if the claim materially affected that value.
What does a deemed cost valuation look like?
Illustration only. At the year end a sole trader on the accruals basis has, with no reliable rearing cost records:
| Stock | Open market value | Deemed cost |
|---|---|---|
| 40 home reared store cattle | £48,000 | 60% = £28,800 |
| 200 home bred lambs | £20,000 | 75% = £15,000 |
| Harvested wheat in store | £30,000 | 75% = £22,500 |
| Winter barley in the ground | Not used | Actual seed, fertiliser, spray and cultivation costs |
Ten bullocks bought at £900 each in the autumn would instead be valued at their purchase price plus rearing costs, because deemed cost cannot go below that figure for bought in stock.
Can deemed cost be fixed at maturity or applied every year?
Helpsheet 232 prefers deemed cost to be fixed when an animal reaches maturity, but accepts valuations based on open market value at each balance sheet date if used consistently, warning that this may bring profits into tax earlier. The basis chosen must be consistent and in line with generally accepted accounting practice, and HMRC asks to be told of any change; BIM33199 explains that moving from an invalid basis to a valid one means recomputing both opening and closing stock. Accounts prepared under FRS 102 may instead use fair value less costs to sell, which Helpsheet 232 recognises; see agriculture and biological assets under FRS 102.
What mistakes come up most often?
- Using deemed cost when actual costs can be worked out from feed, vet and labour records.
- Applying the cattle or sheep percentages to bought in stock, or to poultry, goats or pedigree animals.
- Valuing production animals at cull value.
- Leaving growing crops or unweaned young out of the valuation.
- Switching between methods from year to year without telling HMRC. Helpsheet 232 warns that interest and penalties may follow if tax is lost or delayed by an incorrect valuation.
Valuation choices move profit between years, which can interact with averaging for farmers. Farmers working out other year end adjustments may also find our page on farmhouse expenses useful.
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Related Accountapedia entries
- VAT on livestock, animal feed and seeds
- Agricultural property relief
- How delinked farm payments are taxed
- BADR on selling a farm or part of a farm
- Business relief vs agricultural relief: which applies
Sources
- legislation.gov.uk: Act 2005 c. 5, section 30
- GOV.UK: Manual page BIM55425
- GOV.UK: Manual page BIM55401
- GOV.UK: Manual page BIM55410
- GOV.UK: Manual page BIM55420
- GOV.UK: Manual page BIM55440
- GOV.UK: Manual page BIM55430
- GOV.UK: Manual page BIM33199
- GOV.UK: Print
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.