Share Farming has recently been championed by the CLA as a structure which could be used to overcome many of the challenges the agricultural industry currently faces. A new share farming promotion has been launched with the intention of helping young farmers across the UK to ‘get their first foot on the farming ladder.’
Share farming is undertaken by two or more individuals who agree to work together to share the farming of an area of land. Both parties provide different resources in terms of knowledge and assets, in order to create an enterprise which benefits from the synergies that arise.
As share farmers, the individuals involved operate separate businesses and remain independent, where often, one individual provides the land, buildings and other fixed equipment and the other, known as the operator, provides the machinery and labour. A process known as the ‘assessment of shares’ is carried out, where the inputs provided by each individual are quantified. This process then enables the parties to come to an agreement as to how costs and revenue are distributed between them.
There are a number of other farming structures which are more commonly used within the UK, so why would anyone choose to enter into a share farming agreement?
In a share farming agreement both parties accept full commercial risk, regardless of the business’s performance, there is no guaranteed payment or profit for either party. Unlike a Contract Farming Agreement, share farming does not facilitate the use of a joint bank account. Instead, rather than splitting the profits of the venture, the outputs (grain/stock) are split between the parties, who can use them as they wish. As a result of this, both parties in a share farming agreement can mutually benefit from any tax advantages.
Under the terms of a Farm Business Tenancy rent and any ingoing valuations would normally be paid in advance, meaning that the tenant would need to have access to capital before entering the agreement. In a share farming agreement no guaranteed payments are made between parties at any stage. ‘Both parties thrive in the good years whilst proportionately sharing any losses in the poorer times’. As a result of this, share farming lends itself to young individuals who are not capable of affording a monthly rent associated with an FBT as well as older farmers, perhaps looking to take a step back but not yet ready to ‘throw in the towel.’
A share farming agreement does not form a tenancy or partnership, yet allows the land owner to continue to benefit from Agricultural Property Relief and Entrepreneurs Relief by being in occupation of the land. As share farming is recognised by HMRC and other rural economy stakeholders, including the RPA and DEFRA no difficulties arise with applications for rural grants including BPS claims. The BPS payment is available to either party depending on how the agreement is constructed.
Care must be taken not to form a tenancy as this will create rights and obligations under the Agricultural Tenancies Act 1995. The individuals involved within the share farming agreement also need to ensure a partnership is not created, as this would amongst other things make both individuals liable for the other’s debts.
A ‘more simple’ arrangement can also be sort under the terms of a license. A grazing or cropping licence is essentially the sale of the standing grass/growing an arable crop for the purpose of grazing or harvesting but is only a licence and does not provide the licensee with a right of exclusive occupation, as would be conveyed by a tenancy. This is also pertinent in relation to one’s ability to claim BPS, in that a licensee may not have sufficient management control to comply with the scheme rules, whereas a tenant more likely would. A licence is commonly only used for the duration of a season, although multi-year licences are possible.
