Contract Farming Agreements registration
Contract Farming Agreements (CFAs) and more specifically Whole Farm Contracting (WFC) arrangements have been in existence for some time now. Originally conceived as a way of sharing the occupation of land without creating a tenancy, they are now widely used to enable landowners to continue to farm, perhaps as age takes its toll, whilst giving a neighbour the opportunity to spread their costs across a wider acreage.
Each agreement is unique to the circumstances of the parties, and a properly drafted arrangement (where what happens on the ground reflects what is written in the agreement) will be commercially attractive. Incidentally it also allows the landowner to enjoy the fiscal advantages of farming ‘in hand’, whilst releasing capital and spreading some of the work.
The mechanics of the arrangement will be well known to all involved. The landowner sets up a second account, which the contractor can also operate. This is used to pay costs and receive sales revenues.
At the end of the year a statement of account is drawn-up and the two parties share income in a pre-set proportion. Usually each has a fixed ‘first share’ and a variable ‘divisible surplus’. The landowner will make the subsidy claims, owns the crop, and has input into the strategic management. The contractor is left to deal with day-to-day matters. There will normally be regular (and ideally, minuted), management meetings throughout the year.
This type of arrangement, if properly set-up and followed, is rarely challenged for tax purposes. But where it deteriorates into what is, for all practical purposes a rental arrangement, it may be attacked. This happened in the well-known Arnander Inheritance Tax case in 2006, where the payment to the contractor was described as ‘rent’ in the cash book, and was unchanged for many years. What was actually happening did not follow the written CFA, and it was held that the deceased was not farming.
Users of Professional Plant Products register now
A recent new requirement from DEFRA may have a bearing on such cases in future. On 26 May 2022 DEFRA instituted a new register for users of Professional Plant Products (PPPs) This specifically includes those who “…have professional PPPs and any adjuvants applied by a third party as part of your work in agriculture, horticulture, amenities or forestry.” On a superficial level this means that landowners with CFAs in place will need to register by 26 June 2022. The process is not arduous, but needs to be undertaken since it is likely to be enforced by a penalty regime – probably linked to subsidy payments. The trickiest question on the form is probably the one asking for volume of PPPs applied to the holding. This will be available from the field records (or from detailed invoices, in cases where the contractor procures the inputs as part of the agreement).
Still working the land?
There is probably also a more significant issue at work here – the whole structure of a CFA is that the landowner is still working the land, even though someone else is carrying out some operations on it. Failure to comply with a regulation that specifically requires compliance by those with a farming business, must fundamentally weaken that argument. One of the issues that damaged the taxpayers’ case in Arnander was that the contractor claimed the subsidy payments rather than the landowner.
Failing to register as a PPP user might be equally unhelpful to the tax position. Conversely, proper compliance with the rules would strengthen the argument that the landowner is fully involved in his farming business.
Advantages of the CFA
The advantages of the CFA extend across all the taxes though. A working farmer can make pension contributions, recover VAT, roll over capital gains on business assets and enjoy business property relief on death. None of these benefits are available to a renter of farmland.
If you’d like to discuss this in more detail, please get in touch with your usual Larking Gowen contact. You can find contact details in the Our People section of our website. Alternatively, call 0330 024 0888 or email firstname.lastname@example.org.
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