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Dog breeders - capital, stock or not allowed?

How should the cost of new breeding stock be treated for tax purposes?

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I tend to deal with more traditional corporate businesses and therefore I'm hoping someone with more expertise may be able to help out. I have looked through the guidance but still find myself confused.

I have a clients son who runs a dog breeding business. He runs it out of his fathers premises, I have no concerns over the welfare of the animals or how they are treated. Having looked at it, it is definately a trading business and not a hobby. A lot of time searching for suitable breeding stock, often importing them from overseas at considerable cost and then breeding them for 3 litters before selling them on to create room for new stock. The breeding animals are not considered to be family pets, and none have been retained to date, all are sold on. 

So far around £50k has been spent on the actual breeding animals. Whilst this is a business (fully licenced and registerd etc) profits were always minimal due to the level of costs associated. However with the price of puppies increasing, it is likely going forward that profits will be made. Therefore how should the cost of acquisition of the breeding animals be treated - they have always been ignored previously.

My research throws up treating it as stock potentially, or as capital asset or making a herd basis election. All rather confusing.

Has anyone come across this before?

Replies (21)

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Replying to nick farrow:
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By Tax is always taxing
12th Jul 2021 10:12

Thanks Nick. That does help. Clears up for me that can apply herd basis to any animals, not just farm.

Main benefit is that the future sale of the herd would not be taxable - that's not really a big advantage, as do not look to make money on sale of animals that have been bred, they just look to find a good home.
I would be more beneficial to treat as stock and then be able to claim the cost of the stock as an allowable expense when sold.

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Replying to Tax is always taxing:
By SteveHa
12th Jul 2021 15:20

Not quite. It's likely that there are two separate aspects, being the breeding animals (for which herd basis may be available), and the offspring, which are likely to be trading stock and so outside the scope of herd basis.

For your research I'd be tempted not to narrow your search to tightly. Look instead at farming generally.

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Replying to SteveHa:
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By The Dullard
12th Jul 2021 16:42

You can't milk puppies?

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Replying to The Dullard:
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By Tax Dragon
12th Jul 2021 17:02

I think OP's "animals that have been bred" are the parents, not the pups. Not the most unambiguous phraseology, but I've seen worse. In here. By me.

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Replying to The Dullard:
By SteveHa
14th Jul 2021 12:35

I tried. Had to have a finger sown back on.

And, ermm, can puppies produce milk any more than prepubescent cows or humans can?

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By Tax Dragon
12th Jul 2021 10:21

Forgive the tangential question, but I'm curious as this type of scenario crops up quite often in here and it makes me think I'm missing a trick. How much advice are you providing to this individual that is not your client and how are you paid for it?

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Replying to Tax Dragon:
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By Tax is always taxing
12th Jul 2021 10:37

You're not missing out on anything Tax Dragon. I'm sure you already garnered the son is not my client, I am not engaged and therefore I am not providing advice or being paid for it.

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Replying to Tax is always taxing:
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By Tax Dragon
12th Jul 2021 11:03

Thanks.

So this is just idle chitchat about tax and accounts principles, conducted amongst friends, and it doesn't matter if any assumptions we make or conclusions we reach are completely wrong, because they will go no further than these four walls. That's just how I like it.

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Replying to Tax Dragon:
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By Tax is always taxing
12th Jul 2021 11:16

No, its more idle chit chat amongst some friendly strangers... and you of course ;)

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Replying to Tax is always taxing:
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By Tax Dragon
12th Jul 2021 11:23

None stranger than me.

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Replying to Tax Dragon:
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By Tax Dragon
12th Jul 2021 11:24

@DJKL... sorry, I mean none stranger than I. (I think.)

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By Paul Crowley
12th Jul 2021 10:50

Confused
Has the son declared sales of breeding animals but not claimed the cost of breeding animals?

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Replying to Paul Crowley:
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By Tax is always taxing
12th Jul 2021 10:59

He has been including all sales within revenue, so all the puppies and any income received from the dogs used for breeding. Albeit he apparently gets very little for these as its more about a good home than making money on the breeding stock. So some go for free, some for nominal amounts.
He had been told you cant claim the cost of the dogs he buys to breed, but seems against all principles I know.

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By The Dullard
12th Jul 2021 11:46

Ah, so is the son making losses from his husbandry business?

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Replying to The Dullard:
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By Tax is always taxing
12th Jul 2021 11:58

He was when it was more of a hobby, and then still when he decided to make it a proper business.
But the dogs have seemingly tripled in value since lockdown, so sounds like he will be making good money (for now).

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By DianeLockhart
14th Jul 2021 10:55

Interestingly I have found myself in a similar situation to be advising a 'friend' dog breeder who has inadvertently not accounted their tax for 8 years! HMRC caught them when they got the names of the breeders and records from the pet insurers where 30 days free pet cover was provided by the breeder and they got gift vouchers on any insurance taken up (that is another story of HMRC being a bit smart and 18,000 naughty breeders being nailed).

The breeder was pretty smart did some research and got advice from an accountant who specialises in accounting for cat and dog breeders, before she convinced me to write up her books. All submissions included the purchase costs of the dogs from which breeding had occurred or intended to be bred, we also included all transport costs and this included the delivery of several animals by them to a client in Malaysia, a vehicle, its maintenance and usage amongst many costs. This physical internal visit creating more business for them offshore.

We treated and the HMRC accepted the breeding dogs are a capital outlay as you have no business without them! 50k does not surprise me when I consider how much my breeder has shelled out. Whilst the market has massively increased the breeding dog will never achieve as much as a pup because they are more susceptible to health issues in later life, having had a few litters. My breeder retires her ladies and gives them to families who are dog mad, she rarely sells her adults for a profit.

What was really interesting is with regards to the cats, the advising accountant calculated an average cost for breading a kitten for sale and times that figure by the number of animals identified as sold - this was the accepted protocol!

The reason we did not do this with the dogs is because of the number of dogs bought to breed over the time (these included failure to breed or dna test failures affecting breeding).

It was an eye opener to the complexity and costs of being a reputable breeding. All be it from the home. Not to be scoffed at!

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Replying to DianeLockhart:
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By Tax is always taxing
14th Jul 2021 12:36

Thanks Diane.

Yes I noticed while googling the subject that petplan had been used by HMRC and caught a lot of people out. Luckily this has always been declared in the past, even though it appears to have been more of a loss making hobby.

There are accountants who specialise in cat and dog breeders... who knew.

Thats interesting, when you say capital, did you treat them as a fixed asset and claim CA's on them? i know you can do this with working dogs, but interesting that you can do it with breeding stock too.

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Replying to DianeLockhart:
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By Hugo Fair
14th Jul 2021 13:51

"average cost for breading a kitten for sale" ... so are they sold raw or deep fried?

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By Ben Alligin
14th Jul 2021 11:51

Out of interest, what breed of dogs are we talking about here?

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Replying to Ben Alligin:
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By Tax is always taxing
14th Jul 2021 14:52

I have no idea what breed they are Ben (but all small), my understanding is its 2 or 3 different breeds he does.

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