As we approach the end of harvest for another year thought turns to taking stock of the year past as well as planning for next year and beyond. This is a busy time of the year for us in the office as we are reviewing our Contract Farming Agreements (CFA’s), producing annual reconciliations and holding pre drilling meetings to instruct contractors for the season ahead. What is becoming more and more important is that CFAs are correctly drafted and implemented. It is clear that HMRC are now looking very closely at not only the formal agreement but also the practical implementation of the agreement. A number of cases now exist where a CFA has not been implemented properly and as a result the benefits of using such an agreement have not been fulfilled, often leaving the landowner/farmer or their family significantly exposed to taxation.
The simple exchange of cheques once a year will no longer be good enough to demonstrate proper use of a CFA. The farmer/landowner needs to show evidently that they are still taking financial risk from the enterprise, and not simply receiving a ‘rent’ through a false agreement. Essentially the theme of the agreement should clearly demonstrate that the Farmer is “farming with contractors”.
It is essential that meetings are held, ideally quarterly, and that they are recorded. A dedicated CFA, number two, bank account needs to be setup, funded and managed regularly by the farmer. Profit share arrangements need to be agreed in advance of crop planting and be detailed within the written agreement. If insufficient profit is made, then the farmer’s return will be at risk and reduced accordingly.
As part of demonstrating that the farmer is partaking in the risk of growing the crop, subsidy income should form part of the income. It is also key when planning the cropping with the Contractor that any ‘Greening’ requirements and Ecological Focus Areas (EFA’s) are met. With alterations to the Greening rules in the last few years we are taking the opportunity to review EFA plans with farmers to better utilise that land available for cropping.
As a business we have dedicated team of farm secretaries running CFA accounts for many farmers. This allows us to offer a complete package service, by working closely with your accountant and solicitor to ensure that you remain compliant with the latest legislation to remain actively farming the land. With the increasing scrutiny HMRC are subjecting these agreements to it is essential that not only do you have a proper and robust agreement in place, but it is actually run and implemented in full accordance with the agreement made. The loses from not complying are significant and will be costly.