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Are Proceeds from breeding puppies taxable?

A friend of mine has asked if he should declare the proceeds of sale (£4.5K) of a litter of thoroughbred puppies on his tax return and pay tax on them.

The bitch is a pet. No other dogs are kept. Fortunately (for him) there were no vet fees as his partner is a vet and performed her services for free.

If the proceeds are taxable, I assume that the puppy food will be allowable as an expense. But what about the cost of the bitch and the food and care she has received since being acquired (a few years ago). She would not have been able to produce the puppies if she hadn't been looked after since acquisition!

If the (net) proceeds are taxable is it to be "other income" or "trading income". If the latter should my friend have registered with HMRC and is he now liable to a £100 penalty?

If it is taxable, then there must be a lot of people out there evading tax!
Ian Dalzell

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24th Jul 2007 18:48

IBA??
Jane - i don not follow your comment regarding IBA's ... can you please clarify ...

Race Horses & Greyhounds are regarded as wasting chattels ... but have nothing to do with IBA's

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23rd Jul 2007 13:09

License needed
Breeding dogs as a business requires a licence so arguably if you consider you do not require such a licence then not a trade. See http://www.defra.gov.uk/animalh/welfare/domestic/index.htm
Dogs are not "goods" for IBA purposes so not sure if they are "chattels" either as suggested below?

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21st Jul 2007 13:22

Wasting Chattel
I agree with Josie - they fall under CGT - and as wasting chattels they are exempt from CGT. Hence no tax to pay.

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By Anonymous
20th Jul 2007 00:15

CGT?
Aha, but presumably the acquisition of the bitch was a capital expenditure therefore the sale of the puppies is a capital gain and not an income?

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19th Jul 2007 14:46

Maybe the vet should charge
I wonder if the fact that the vet is "free" is more of an issue? My own personal experience in the area of breeding animals is akin to Neil's ie the vet bills eat up proceeds of sales. HMRC might argue that some adjustment is required to the vet's accounts if services are provided free; if a bill were rendered this might create more tax to pay in the practice but would at least clearly go some way to offsetting the proceeds of sales were the point ever taken. The obvious counter argument though to HMRC is would they have permitted a loss if on attempting to breed one litter of puppies tragically all the puppies died? What about the good old badges of trade - intention to make a profit - was bitch acquired just to breed - number and frequency of transactions - many people do like to breed once from a pedigree bitch (did he keep any of the puppies himself?) etc.

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By Anonymous
18th Jul 2007 17:39

The moment it makes money it stops being a hobby!
I had one of these - fortunately before the £100 penalty for late registration. To make things worse, one of the puppies featured in the new 1001 Dalmations Film, and the proud owner talked all about it on local TV (and he did casual maintenance work at the local District Office to boot!).

I went back to the beginning and created round figure loss accounts for all years since the bitch was bought (don't forget the stud fees) to set against the profits on breeding and hiring the puppy to the film people.

The b/f losses more than covered the breeding gain and after a tussle (IR wanted hiring out dogs to be a seperate trade if you please) reduced the taxable quantum of the hiring fee.

Good luck!

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By neileg
19th Jul 2007 09:36

Harsh economics
My wife breeds cats and sells quite a few as well as buying some. I dream of being able to break even, never mind make a profit. I can't imagine HMRC being very keen on treating this as a trade since there are just a string of losses.

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19th Jul 2007 09:29

Hobby?
HMRC's Business Economic Notes on the pet trade (BEN14) holds out the possibility that sale of offspring may be treated as a hobby rather than a trade.

The guidance is not very clear and indeed concludes with:

"Whether the activities amount to the carrying on of a trade profession or vocation so that the profits are assessable under Cases I or II of schedule D or is merely a hobby, is a question that can only be determined on consideration of the relevant facts in individual cases."

Nevertheless, this may be an angle worth exploring.

Neil.

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