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Are Proceeds from breeding puppies taxable?

Are Proceeds from breeding puppies taxable?

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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

Replies (22)

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By amarshah69
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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By AnonymousUser
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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By amarshah69
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 [***] was a capital expenditure therefore the sale of the puppies is a capital gain and not an income?

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By AnonymousUser
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 [***] acquired just to breed - number and frequency of transactions - many people do like to breed once from a pedigree [***] (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 [***] 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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By neiltonks
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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ALISK
By atleastisoundknowledgable...
12th Sep 2021 12:16

SIFT - why is this trending?

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By I'msorryIhaven'taclue
12th Sep 2021 13:04

My old tax lecturer had an old chestnut of a story that covered this Badge of Trade topic, about a taxpayer who wrote to the Inland Revenue to enquire whether the rabbits that he bred and subsequently sold constituted a taxable business.

The Revenue, being trained to maximise their yield, wrote back to inform him that indeed it did; and that he should include this Schedule D activity on his tax return.

So he did just that. His losses, after deducting feed, hay, veterinary bills and so on, were considerable. He elected for them to be set off against the PAYE Sch E tax he had suffered, and duly received a tax refund.

All of which served to illustrate why the Revenue tend to cherry-pick in such cases.

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Replying to I'msorryIhaven'taclue:
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By Tax Dragon
13th Sep 2021 07:43

A trade is a trade. Profits are taxed, losses allowed - subject to 1. costs deducted in calculating the loss being added back unless satisfying W&E and 2. restrictions on use that may or may not have been applicable to the rabbit breeder's situation. Cherry-picking don't come into it. (The cards should lie where they fall, to continue your metaphor.)

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
13th Sep 2021 10:18

Shoot, no wonder I only got a bare pass!

I guess nowadays a paying hobby such as rabbit-breeding would be covered by the £1k annual allowance. (We once had a litter of seven, and we couldn't give them away!)

However, we're told that our protagonist's income exceeded £4k from a one-off litter. Might there be any leeway so far as Badges of Trade are concerned?
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20205

LATE EDIT: Ha ha! I've just spotted the date of this post was 2007. Better let sleeping dogs lie!

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Replying to I'msorryIhaven'taclue:
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By Tax Dragon
13th Sep 2021 10:27

What's the life expectancy of a puppy? I only ask as this thread is 14 years old.

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Replying to I'msorryIhaven'taclue:
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By Tax Dragon
13th Sep 2021 10:30

<a href="mailto:[email protected]">[email protected]</a>'taclue wrote:

LATE EDIT: Ha ha! I've just spotted the date of this post was 2007. Better let sleeping dogs lie!

Ah, your edit crossed with my post. (Shame as actually you had just made the most interesting comment on the thread! :-) Is the quantum of the proceeds a factor in reading the cards?)

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
13th Sep 2021 11:07

Tax Dragon wrote:

Is the quantum of the proceeds a factor in reading the cards?

Well in my preamble rabbits yielded <£1k p.a. income, whereas puppies yielded >£1k p.a. income (or did at their 2007 market value).

But what do I know! I just makes any old shi... any old facts up, and am allowed to suggest ideas that can be hard to distinguish from tax evasion, without ever being told off.

In spite of your valiant efforts, you just can't teach an old dog new tricks ;-)

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Replying to Tax Dragon:
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By More unearned luck
13th Sep 2021 11:09

Well, the numbers are big in the film scheme cases.

Sticking to the card game analogy, the pack is stacked against the taxpayer. Loss relief is restricted by the trade must be conducted on a commercial basis, the £100k cap and, in the case of newish partnerships, the taxpayer spending 10 hours a week in the business. Whereas none of these things limit HMRC's right to tax profits.

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Replying to More unearned luck:
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By I'msorryIhaven'taclue
13th Sep 2021 11:19

More unearned luck wrote:

Sticking to the card game analogy...

Drat, I thought the theme was canines.

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Replying to More unearned luck:
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By Tax Dragon
13th Sep 2021 11:32

More unearned luck wrote:

Well, the numbers are big in the film scheme cases.

I've not been following the decisions closely enough. Was the question of 'trading?' one of the things being considered? If so, was size tested? Did it matter*?

*There I go again, asking what matters!

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
13th Sep 2021 12:32

You're asking whether size matters?

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Replying to I'msorryIhaven'taclue:
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By Tax Dragon
13th Sep 2021 12:41

Ah, I see what you did there.

Are you teaching a new dog old tricks?

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
13th Sep 2021 13:06

Just playin' the joker ;-)

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Replying to Tax Dragon:
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By More unearned luck
13th Sep 2021 14:47

Great quantum, doesn't affect the principle of course, but it does make what might be a weak argument worth pursuing if you are intent to throw everything but the kitchen sink at the taxpayer and aren't paying your counsel out of your own pocket. HMRC have had success with the argument that what the film partnerships did didn't amount to the carrying on of a trade.

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