Years ago Contract Farming Agreements (CFAs) and Share Farming Arrangements (SFAs) were common place in Devon and Cornwall , used primarily to avoid the constraints of the 1986 Agricultural Holdings Act.

Following the introduction of the Agricultural Tenancies Act 1995, their popularity dropped. There now appears to be a re-emergence of such arrangements, which, if drafted correctly by a legal firm such as Stephens Scown LLP (who have a specialist rural  team for just these types of issues) can be tax advantageous for farmers who may not wish to be so active in the day to day running of the farm due to age or ill health.

Labelling a document as a tenancy agreement, licence, contracting arrangement, or a shared farming agreement, is not enough; the day to day actions of the parties are more important in deciding what arrangement actually exists in practice.

It is important therefore to ensure that what the parties intend is clearly documented and the actions on a day to day basis reflect those wishes. If documented correctly, this will enable a farmer to take a step back (but not entirely) from the day to day running of the farm but still retain the definition of ‘Farmer’ for the purposes of Single Farm payment (SFP) and Agricultural Property Relief (APR). A CFA or a SFA gives greater flexibility than a partnership, or a landlord and tenant arrangement both in terms of tax and also the ability to bring such arrangements to an end.

CFAs are, in essence, the contracting of third party services to carry out an activity on the land. The farmer retains control of the business. The arrangement usually provides for the contractor to be paid a fee for those services with a percentage of the net profit from the crop (in the case of an arable scenario) being the incentive to ensure the yield is maximised.

A contract farmer will have a degree of management responsibility and some level of control over fulfilling his side of the arrangement. By the same token the farmer must evidence a level of control over the business if he is to retain the ‘farmer’ status and the tax advantages which come with that.

The McKenna case clearly showed that leaving the farming activity to a contract farmer and a land agent, resulted in the farmhouse not qualifying for APR. Records should be kept to show the farmer's involvement in the farming activity including the use of the farmhouse as part of that activity.

The contractor usually provides the mobile machinery whilst the farmer provides the land seed and immovable machinery/buildings; care needs to be taken in the drafting of the contract not to end up with an employer/ employee or landlord and tenant situation.

The latter could arise if the contractor has control of the provision of the seed, growing the crop, its harvesting and subsequent disposal. A CFA will allow the farmer to retain the SFP but it is important to ensure the contractor is obliged to and complies with cross compliance other wise the farmer will be liable for any breach of the regulations.

Therefore, whereas the farmer may wish to step back from the full day to day running of the farm he must retain an appropriate control if he is to avail himself of APR and other tax reliefs. A farmer cannot sit back and allow third parties to run the whole farming activity. He should also consider estate management  related issues such as estate administration , succession planning and trusts.

SFAs are appropriate in situations where a farmer who has land and buildings and enters into an arrangement with a third party who wants to farm but does not have those immoveable items. The third party may have the moveable machinery and know-how but, unlike CFAs, it is not the contracting of services.

An SFA is the existence of two independent businesses; records such as accounts must be kept to evidence that fact. SFA's are in nature closer to a partnership arrangement than CFA's and care need to be taken not to create a partnership arrangement which brings with it the mutual liability for debts of the other partner.

A unequal division of gross profits and expenses and the setting out of what expenses each party is liable for may help, but in a time of spiralling costs, this may result in one party having an excessive burden for expenditure. The length of a SFA therefore needs due consideration. Evidencing the existence of two businesses will help in ensuring the arrangement is not one of employer/employee or landlord/ tenant. The latter scenario can be avoided if it can be shown that the shared farmer does not have exclusive occupation of the farmers land.

As with all contractual arrangements between parties, the devil is invariably in the detail and such arrangements should not be entered into without both legal and tax advice.

South West Farmer:

Kate Theophilus is a Partner within the rural  team at leading South West legal firm, Stephens Scown LLP.

She is a member of the Country Landowners Association, a Committee member of the Cornwall Law Society and a Fellow of the Agricultural Law Association. Kate specialises in non-contentious agricultural and rural matters including sales and purchases, partnerships, tenancies, contract farming, sporting rights, entitlements. She can be contacted by calling 01872 265100, emailing rural@stephens-scown.co.uk or by visiting www.stephens-scown.co.uk.