But are some of the everyday 'tax benefits' that farmers enjoy being denied to active farmers by landlords who hold all the aces?
I have recently been looking at a number of dairy contract farming arrangements for clients, having been involved with several joint venture operations in the sector over the last fifteen years. I have been struck by how much these are in favour of the landlord/landholding party.
Having seen fluctuating profits in recent years, and the loss of herds with FMD in the past, some of the most beneficial tax breaks for farmers seem to be missing from the structure of many modern joint venture agreements.
It seems today the popular method for joint ventures is contract farming, this is a business structure that has evolved in the arable sector and has more recently been adapted for dairy farms.
In these structures the contractors are providing a service to the farmer and as such are not actually farming themselves. Whilst they should earn higher profits, they get this reward for the provision of services, not for husbandry.
The main problem with this is that whilst the contractor isn't farming they cannot benefit from farmers averaging, so a bumper year one year that leads to high rate tax liability can't be averaged with a poorer preceding or following year.
This in itself might not be too bad, but all too often cows are owned by the contractor, to keep matters above board these are often hired to the farmer. In practice the contractor earns income from the cows in the form of a rental, not from the sale of produce, either milk or calves. This means that they are not able to benefit from the advantages that herd basis elections give farmers.
This might not appear to be a big issue but the experience of seeing herds culled for disease control shows what a benefit this can be. What happens if animals are culled with TB and tax free status can't be achieved?
And if herds of cows are hired out, are they still business assets for IHT purposes?
All these downsides lead me to think that the use of contract farming agreements in the dairy sector comes down firmly on the side of landowners or occupiers.
It may be the only structure that allows tenants to enter a joint venture but why don't more landlords consider share farming which preserves all of their capital and income tax benefits whilst also letting the other party keep theirs?
If you want to know more drop me an email rob@doddaccountants.co.uk or you can follow me on twitter
