What does section 121 of the Corporation Tax Act 2009 do?

Section 121 caps the taxable trading receipt when a farmer under the herd basis is compelled to sell animals for reasons wholly outside their control and replaces them with animals of inferior quality. The receipt cannot exceed the equivalent amount for the replacement animal, preventing taxation on involuntary quality differences.

How is the equivalent amount for a replacement animal calculated under section 121?

If the replacement came from the farmer's trading stock, the equivalent amount is the cost of breeding and rearing it to maturity, or the purchase price plus rearing costs if bought in. If it was not previously trading stock, the equivalent amount is simply the acquisition cost paid by the farmer.

How does section 121 differ from section 115 of the Corporation Tax Act 2009?

Section 115 applies specifically to disposals made under disease control orders, whereas section 121 is broader in scope. Section 121 covers any compulsory sale for reasons wholly outside the farmer's control, including circumstances such as compulsory land purchase, not just sales triggered by disease control measures.

Can you give an example of how section 121 limits a taxable receipt?

A farmer forced to sell 10 cows at £2,000 each due to compulsory land purchase replaces them with inferior cows costing £1,200 each. Section 121 caps the taxable receipt at £1,200 per animal — the equivalent amount — limiting the total receipt to £12,000 rather than a higher figure under standard rules.

Corporation Tax Act 2009 section 121

Section 120: sale for reasons outside farmer's control

Section 121 limits the taxable receipt when a farmer is compelled to sell part of a herd for reasons beyond their control and the replacement animal is of worse quality than the one sold.

Where a farmer is forced to sell part of a herd for reasons wholly outside their control, and the replacement animal is of worse quality, the taxable receipt is capped
The receipt brought into account must not exceed the "equivalent amount" for the new animal — essentially, what the replacement animal cost
If the replacement animal came from the farmer's own trading stock, the equivalent amount is the cost of breeding and rearing it to maturity, or if purchased, the purchase price plus any rearing costs
If the replacement animal was not part of the farmer's trading stock, the equivalent amount is simply the cost of acquiring it

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