Collaborative farming is where two or more farmers work together in a formal arrangement that benefits each of the collaborating parties. Examples of these arrangements include partnership, share farming, contract rearing and cow leasing.
Partnership & Registered Farm Partnerships Entering into partnership with another farmer can be a good way to achieve economies of scale. Partnership also has social advantages and can help alleviate the loneliness of farming as well as broadening the skill base of your farm. In addition, there are tax benefits for registered farm partnerships and succession partnerships. Registered Farm Partnerships Enhanced stock relief (50% as opposed to the standard 25%) is available for farmers in farm partnerships registered with the Department of Agriculture, Food & the Marine. This increases to 100% for young trained farmers in registered partnerships.
Succession Registered Farm Partnership
This is an incentive to encourage the transfer of farms to young trained farmers. It takes the form of an Income Tax credit of €5,000 for up to five years, allocated on a profit-sharing ratio between a qualifying farmer and his/ her successor and applies to registered farm partnerships. The tax credit is in addition to other registered farm partnership benefits such as preferential stock relief and the collaborative farming grant. The successor must be a young trained farmer (under 40 years of age) and entitled to at least 20% of the partnership profits. The tax credit cannot be claimed in the calendar year where the successor reaches age 40.
Note that there is a cumulative €70,000 lifetime cap on the benefit that an individual can receive under young trained farmer stamp duty relief, stock relief and succession farm partnership.
Share farming is where two parties carry on separate farming businesses on the same land without forming a partnership or company. This type of arrangement can suit landless farmers, farmers with surplus ground or dairy farmers who requires relief. In a typical example, a landowner might provide land and infrastructure for dairying while the share farmer would provide livestock and labour. Each party is a separate business, keeps their own accounts and pays income tax on their own profits. When entering into a share farming arrangement, it is important to draw up a written agreement covering matters such as:
• The start and finish dates of the agreement.
• The provision of assets by the parties.
• Income and cost sharing arrangements.
• The rights and responsibilities of each party.
• Procedures for dealing with disputes.
For VAT purposes, where both parties are VAT registered, each applies VAT in the normal manner to any costs invoiced to the other party. If neither party is VAT registered, neither is entitled to deductibility. Where one party is VAT registered and the other is not, the share farming agreement should stipulate that the sharing of costs and proceeds will be calculated exclusive of VAT.
Contract rearing can provide an additional source of farm income. This arrangement suits farmers with excess housing capacity and those with surplus stock. Livestock is moved from the owner’s farm for rearing by the contract farmer. As with other collaborative farming structures, a formal agreement is required. For tax purposes, contract rearing is treated as part of farming activity and the rules are the same as for sole traders.
This can work well between dairy farmers with surplus cows and farmers with surplus ground but limited capital for herd investment. As with contract rearing, cow leasing requires a formal agreement between the parties. For tax purposes, important points to keep in mind are that cow leasing is not considered farming if leasing is your sole activity and that if the leasing puts your income above €37,500 this will have an impact on your ability to avail of the farmers’ flat rate of VAT. Careful consideration is therefore needed before entering into this type of arrangement.
When properly planned and executed, collaborative farming structures can be very beneficial both financially and in terms of work/life balance. However, it is always advisable to seek professional advice before changing your business structure. For advice in the first instance, contact your local ifac office.
To view the full Ifac Irish Farm Report click here.