Collaborate to Survive and hopefully Thrive!

There can be a reluctance by farmers to collaborate or share machinery, citing a lack of control and ownership as reasons for wanting to do things themselves and with their own assets. In other parts of the world such as New Zealand, more farming businesses share machinery, labour and land.

Share farming and contract farming agreements, alongside joint ventures, have allowed new entrants to get their feet on the farming ladder whilst the experienced farming community remain involved.

There are different business structures that can be adopted to help the business survive and hopefully thrive.

Share farming is where two or more farmers decide that farming together would be advantageous. The farmers can decide who brings what to the table in terms of assets, skills, money, and day to day management of the business.

There needs to a mutual desire for the farming businesses to succeed otherwise the agreement will not last long.

All businesses involved have their own income tax and VAT registrations, so that they are seen by HMRC as independent and need to ensure they submit the relevant returns, whilst ensuring there is no duplication of costs or VAT reclaims!

There should be an annual profit and loss account drawn up from the respective businesses and then this is shared to the relevant farmers in the agreed ratios.

The farmers then report their share of income and expenses alongside any other farming trades outside of the share farming.

There is no partnership from a legal point of view and there should always be a share farming agreement put in place so that everyone knows how the business will operate and how everything will work, especially when the agreement comes to an end or if one party wants to exit.

The right agreement, record keeping and reporting will ensure that everyone can maintain their current farming status which is very important when looking at individual tax positions, particularly when looking at inheritance tax planning.

In contrast, contract farming is where there is a farmer and a contractor. The farmer normally provides the land and buildings, whilst the contractor provides machinery, labour and, if applicable, livestock.

The farmer in this case has less day to day involvement with the activities on the ground but is still managing the business.

The contractor would have a set fee for completing the work undertaken like any other farm contractor and they can use third party contractors for anything that needs specialised equipment or skills to complete, as and when necessary.

Again, all parties would usually be VAT registered and must report their own taxes to HMRC.

There is normally a bonus for the contractor once the annual figures are completed to give them an incentive to be efficient and ensure the farm is being farmed effectively and profitably. The risk however is taken by the farmer, thereby ensuring the business continues to be treated as trading.

In this type of structure, the contractor does not usually own land and buildings that would qualify for agricultural property relief but instead would look at business property relief. There could be an option for the contractor to acquire land and buildings during the agreement as a further incentive.

As you can see, there are various farming structures available to you, depending on your circumstances, to ensure your business can continue. There are also lots of people wanting the opportunity to farm.

So don’t leave it too late and discuss your options with us or your farm consultant, as your success is our success.