Time to share?

CLA South West Member Monthly Partners, Smith & Williamson's Aloysia Daros talks about share farming agreements in this latest partner article.

For many years, farming businesses have had the choice over the way in which they carry out their operations; by themselves, in partnership, through a contract farming agreement (CFA) or through a share farming agreement, to name a few. While traditional farming carried out by the farmer independently or in partnership is still very common, many businesses have looked to a CFA or share farming agreement.

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DEFRA’s farming statistics published in December 2020 showed a decrease in arable cropping area and a lower yield for cereal and oilseed crops. With these results and various potential legislative changes, some farmers are now looking to review their existing farming operations to ensure they are still fit for purpose.

Contract farming and share farming agreements come with similar tax benefits to farmers that carry out operations alone, or in partnership, but with the added benefit of sharing the workload ‘on the ground’ and sharing expertise between the parties involved.

Contract Farming

Contract farming is more common than share farming. It is a joint venture where the farmer provides land and buildings, and continues to claim farming subsidies, and the contractor provides labour, machinery and power. A bank account should be set up by the farmer, paying for the inputs and receiving all income. The contractor receives a basic fee throughout the year, usually based on a price per acre, and the farmer takes a basic return at the year end, usually referred to as a first charge. Any surplus, as calculated in accordance with the agreement, is then divided between the two parties (‘the divisible surplus’).

Provided the CFA is drawn up appropriately, for example ensuring day-to-day decision making rests with the farmer and not the contractor, it can provide tax benefits as well as operational benefits.

As the farmer will be trading, agricultural property relief (APR) should be available once the farming trade has been carried out for two years. Business property relief (BPR) may also be available after two years.

Compliance with VAT rules is often quite straightforward. The farmer is responsible for paying for all inputs and receiving all income, which is usually zero-rated for food crops. The contractor’s charge carries the standard rate of VAT, which could be recovered by the farmer. The divisible surplus payment would be a further consideration for the contract farmer’s husbandry services and as such also subject to standard rated VAT. As far as the farmer is concerned, the VAT compliance could be straightforward and could result in monthly returns due to the repayment position they may find themselves in.

Share farming

This will usually involve two parties coming together in a joint venture and sharing input costs and income while running separate farming businesses. Typically, the owner provides the land, buildings, fixed equipment and major maintenance while the other party provides labour, machinery, energy costs and part of the working capital. Both parties could be landowners. Each party pays for inputs and receives income reflecting their agreed share, which is usually based on the underlying value that each party brought to the table. There are no guaranteed payments and no joint bank account.

The production risks and rewards are split between the two parties, with the owner retaining full tenure and possession, enabling APR to be claimed two years after the commencement of operations. BPR could also be available after two years for each party.
Establishing share farming arrangements tends to be more complicated than CFAs as there is no set bank account to make and receive payments, and two sets of invoices and receipts will have to be processed. Costs and income will usually be shared based on the relative value each farmer contributes to the joint venture.

It is also important that the joint venture is not set up as a partnership, but rather two separate businesses. In a share farming scenario, costs and expertise are shared and each can provide working capital. Each farmer is free to do with their outputs as they see fit, once they are harvested from the land.

Each farmer will be registered for VAT and separately claim input VAT on their own VAT returns for any expenses incurred. Each party will invoice the other for their share of the costs, and this will follow the liability of the original supply. So, for instance, a recharge of seeds by one party to the other will be zero-rated, and a recharge of machinery maintenance would be standard rated. This recharge is usually done just prior to the sale of the harvest. The harvested crop or livestock, which is usually zero-rated, will be sold by the party or parties who own it. Any subsequent share of the proceeds being passed between the parties is outside the scope of VAT.

Next steps

Any farming business looking to enter into a CFA or share farming agreement should take professional advice from their tax adviser and solicitor. With closer scrutiny by HMRC on BPR claims by farmers, a review of existing CFAs is also encouraged.


By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2021/22.

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Aloysia Daros - Partner, Private client tax services

CLA South West Member Monthly Partner

Smith & Williamson are CLA South West Member Monthly Partners. The advice contained within this article is supplied by Smith & Williamson. The CLA may be able to assist you with advice in this subject area, please contact your regional office.

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Smith & Williamson are CLA South West Member Monthly Partners