MHA | Contract farming arrangements – another little tripwire

Contract farming arrangements – another little tripwire

Joe Spencer · Posted on: June 28th 2022 · read

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We focus on the DEFRA requirement for plant protection products (PPPs) in contract farming and what it means for farmers.

The terms of a contract farming agreement (CFA) are relatively well known, although each one should be tailored to the circumstances of the parties involved. A landowner will engage a contractor to carry out defined works and the contractor will provide certain elements of the labour and machinery to grow the crop or look after the livestock, whilst the landowner will provide the land and pay for the inputs. The permutations of the arrangement are almost infinite but often the contractor’s overall remuneration will be partly determined by the profitability of the crop, so will share in the “divisible surplus”.

Normally the contractor will order the seeds, fertilisers and sprays for use on the contracted land, and these will be paid for from a special “number 2 accounts” which the landowner provides and to which both parties have access. In some smaller cases the contractor may instead provide the inputs to the landowner directly, charging throughout the year as the inputs are provided. The key common factor of all these arrangements and the feature which distinguishes it from a rental arrangement is that the landowner will own the crop, be responsible for buying the inputs and effectively bear an element of risk.

A recent DEFRA requirement will, therefore, need careful consideration by relevant landowners. Where businesses use plant protection products (PPPs), from 22nd June they will be required to register details on a new DEFRA website. This applies not only to those who store and apply PPPs but also to those who “have professional PPPs and any adjuvants applied by a third party as part of your work in agriculture, horticulture, amenities or forestry”. The rules will apply very widely including farms, schools, parks, roads, railways and forests. Domestic garden use, however, is not included.

According to MHA agricultural partner Joe Spencer, aside from the sanctions that DEFRA might apply, there can also be a fiscal issue.

“For many, the attraction of contract farming is that the landowner can continue to enjoy the fiscal advantages of farming without necessarily needing to undertake all the work in person. If HMRC were to take issue with such arrangements, (and this has happened in the past in an Inheritance Tax context) failure to comply with such a clearly defined legal requirement would not necessarily be helpful in defending trading status.”

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