Wednesday, October 17, 2018

Take care to ensure contract farming agreements are genuine

April 30, 2018 by  
Filed under Property

Farmers setting up contracting agreements should take care to show that they are still farming as part of a trade or business.

The warning follows a court case in Scotland concerning a tenant who had contracted out his farming activities. The Central Association of Agricultural Advisers said the case had implications for similar situations in England and Wales.

“The courts found that a secure Scottish agricultural tenancy lost its statutory protection because the tenant had substantially abandoned use of the farm for agriculture for the purposes of a trade or business,” said CAAV secretary and adviser Jeremy Moody.

Sham agreement

This was partly because the arable contracting arrangement used by the tenant was found by the court to be a sham which left the contractor with a free crop of spring barley after an simple exchange of paper invoices.

The sham agreement had been designed to avoid looking like sub-letting – which was forbidden under the tenancy – but the court found that the tenant was not exposed to any business risk and described the arrangement as an entirely artificial paper exercise.

The tenant had also set up sporadic grazing lets which the court found to be inadequate. They did not constitute the sale of grass and there was no evidence that the tenant undertook any management to maintain the quality of the sward, with all work done by the graziers.

Day-to-day business

Mr Moody said: “The court asked if the agricultural activity on the land was part of the tenant’s trade or business and found it was not – it was conducted on a day-to-day basis almost entirely by others.”

While the case revolved around the protection of an agricultural tenancy, other cases have shown that farmers can lose valuable agricultural tax reliefs of they are not deemed to be actively farming, added Mr Moody.

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