CAP reform

CAP reform – eligibility for Basic Payment Scheme (BPS)

Most aspects of the reform are now clear. However the latest Defra guidance confirms potential difficulties for a few entrepreneurial businesses that will fall into the category of excluded businesses often as a result of trivial activity. There are two aspects to consider: exclusion and re-entry. The problem is that once a business falls into the excluded category other income may count against the applicant.

 

Few, if any, farmers will be excluded as operators of airfields, railway services or water supply companies. These exclusions apply only to the major licensed operators. Some of these may require a change of policy in terms of managing land retained to protect the business, or reserved for expansion, but the agricultural subsidy is invariably a small part of their return.

The two exclusions likely to cause most difficulties for farmers in England and Wales are operators of real estate companies and operators of permanent sports and recreation grounds. Scotland has also the extra problem of operators of sporting estates. Unfortunately, for some the readmission criteria designed to protect farmers where these ventures are secondary has the potential to backfire.

Real Estate Operators

The Commission’s intention was to exclude businesses that made their livelihood from trading land and developing land rather than farming but Defra has struggled to satisfactorily define these businesses and has deferred guidance once again.

Permanent Sports and Recreation Grounds

Permanent sport and recreation grounds is the category most likely to lead to difficulties. While Defra guidance mirrors the regulation, it was hoped that more of the ambiguity would be resolved.

The key principles are:

• The two businesses have to be operated by the same person. Thus an employee of say Chelsea Football Club (an ineligible activity) who also farmed would not be excluded or a farmer who rented a piece of land to Chelsea Football Club to use for training would not be excluded.

• It has to be a business. Thus a return has to be made so swimming pools, tennis courts and golf driving ranges for personal use would not flag the potential exclusion. However, if the sports or recreation area was mainly used by the farmer for his own use but occasionally opened up to the public, and received income (even if subsequently passed to charity) the exclusion might come into play.

• There must be a permanent structure. Thus a manège is not considered to be a permanent structure (even if surfaced) so would not result in exclusion but it would if there was a viewing stand. However, Defra state that the building and stables of the livery would not. Similarly a wild life area or caravan site would not be an excluded unless there was a hide on the former and WC block on the latter.

• The activity must be on a “ground”. This means that indoor activities and water (lakes, rivers and pools) based activities do not lead to exclusion –but according to Defra a water park does. Linear trails are not considered to be grounds.

• The excluded use should be the primary use and not agriculture. “Primary” is not defined but Defra use the expression in the context of land used for point to point or cross country jumping courses.

There is certainty within the definitions but also plenty of ambiguity. Open gardens, if there are permanent WC facilities or a café, would risk exclusion.

Re-entry into the Scheme

The exclusion does not apply to those receiving under €5,000 and there are other conditions that allow readmission:

1. Direct payments are at least 5% of the total receipts obtained from non-agricultural activities in the most recent year.

2. That agricultural activities are not insignificant. In England agricultural receipts must be at least 15% of total receipts, while Wales and Scotland have adopted the default that these must be one-third.

3. That agricultural activity is a principal business or company object.  Where the business is a company the company objects will be used but otherwise a report from an accountant would be required. Unfortunately the exact terms are still vague.

Agricultural and Non-agricultural Income

The legislation defines receipts from agricultural activities as receipts from sale of stock and crops and income from subsidies (direct payments and stewardship). Receipts from processing on the holding can also be included. Taken at face value this means that there is no correction for changes in stocks or even debtors and creditors.

Income from farm diversification, even where resulting from Rural Development funding appears to be counted as non-agricultural income. More importantly, agricultural contracting income would be counted as non-agricultural income.

Thus a business excluded because it received a few hundred pounds for allowing access to a hide on its unfarmed marshland might not be able to re-enter the scheme because the contract farming income meant that the non-agricultural income exceeded the threshold for readmission. Conversion of the contract farming arrangement to a share farming arrangement might help but opens up a number of potentially far more serious issues.

Another complication is that the legislation states that the income should be gross of taxes and so interpreted by Defra as being gross of VAT thereby inflating non-farm income. If this were taken to include VAT it would inflate non-agricultural income but not agricultural income.

There are actions that might be taken but they need careful thought and a good understanding of the legislation and wider issues.

Please view the CAP Summary accross the UK table here.

 
 

Key contacts

Andrew Wraith

Andrew Wraith

Director
Food & Farming

Savills Lincoln

+44 (0) 1522 508 973

+44 (0) 1522 508 973