Contracts

Share farming and contract farming

These farming systems avoid the formation of a partnership - where one partner would be liable for any debts the other held - or a tenancy, which may not be ideal due to the security of tenure agricultural tenants hold making them difficult to remove should that become necessary.

They also allow a farmer to remain in possession of his farm and continue to benefit from the financial returns from the business while taking less of an active role. The implications from such agreements are that a farmer can benefit from tax reliefs on the farmhouse, for example.

Both types of agreement are much more flexible and less restrictive than a partnership or tenancy, but there are still risks for either party, presented by the landlord entrusting important aspects of his business to the share farmer or contractor, the share farmer/contractor becoming negligent in his responsibilities, or any general disagreement between parties threatening the success of the venture.

Share farming agreements

A typical share farming agreement involves the owner or tenant of farm land (the landowner) and a working farmer (the share farmer), who enter into a contract to jointly farm the same land.

Share farming or share milking arrangements are a means of allowing a farmer to retain his land and buildings and still take an active interest in how the farm is run while relinquishing a large degree control of his business and withdrawing from the day-to-day farm work.

Share farming arrangements ensure that the landowning farmer will still be considered to be running a farming business in the eyes of Her Majesty's Revenue and Customs (HMRC), and can continue to benefit from the Inheritance Tax, Capital Gains Tax and Income Tax advantages of being treated as a farmer. However, HMRC has commented that to fully meet the rules on genuine share farming agreements the landowning farmer must have some involvement in the day-to-day management of the business.

Share farming contracts can be written to suit the particular circumstances but often involve:

  • The landowner providing the farm land and buildings, fixed equipment and machinery, and being responsible for major maintenance of the buildings.
  • The share farmer providing labour, field and mobile machinery and expertise.
  • The sharing of costs such as fertilisers and feed.
  • The ownership of livestock being shared on the basis that each party owns a share in each animal.
  • Each party being responsible for their own tax and VAT returns and the production of their own accounts.

One primary advantage of share farming is that it enables a landowner, who may be someone with years of experience of farming the land concerned to farm as a joint venture with a neighbouring farmer or someone with agricultural training and expertise who does not own or rent land but who wishes to farm on their own account.

DairyCo have template contracts available for producers to use in their businesses, please contact DairyCo publications for copy.

Contract management agreements

Contract management is similar to share farming, the difference essentially being that a farmer uses the services of a contractor or another farmer to supply labour, machinery and management. The contractor receives a set fee for the services provided and a bonus as a percentage of the calculated profit from the venture.

The farmer remains in control of the business, engaging the contractor on defined terms, effectively purchasing services from the contractor (usually covering the day-to-day running of the farm) as well as purchasing an element of management input.

However, unlike share farming or milking agreements, the contractor gains no share of the ownership of livestock.

This option is more useful for the farmer wishing to retain control of his business and well as ownership of the farm, but who does not want to render as much control of the business as a share farming agreement would imply.

DairyCo have template contracts available for producers to use in their businesses, please contact DairyCo publications for copy.