The use of contract farming agreements has become relatively common in recent years, particularly in arable situations.
It has, however, become increasingly important in beef, sheep and dairy farming enterprises. The popularity among landowners has been due to the fact that it is flexible, retains trading and tax advantages in certain situations, and can reduce operating costs in most cases, thus improving profitability.
The Farmer will provide the land, buildings and working capital for the agreement, with the Contractor supplying the labour, expertise and machinery to operate the agreement. The Contractor is paid a fee to cover day to day operations, which after accounting for all other income and expenditure, leaves a surplus to be shared out between the two parties on a pre-arranged basis.
The CFA offers an alternative to longer term leases and the obligations these can have on the landowner. It can offer opportunities for new entrants or existing businesses to expand, and is suitable for farmers looking to continue farming (perhaps for a period until the next generation returns home to farm) but wishing to reduce their day to day involvement. However, with HMRC examining some of these agreements more closely, it is imperative that the Contract is comprehensive and that it is properly documented and administered.
Choosing the wrong contractor can also be costly, and our service can include supervising a business restructuring, advertising for a contractor, negotiating terms, preparing budgets, administering the agreement and calculating profit share.
Given our experience in operating agreements for Farmers, we are also well placed to prepare budgets or tender documents for potential Contractors.