JOINT VENTURE

PROJECT REPORT

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CONTENTS

Page
1.

INTRODUCTION

2.

FACTSHEET 1 EQUITY PARTNERSHIPS

24

3.

FACTSHEET 2 SHAREMILKING

57

4.

FACTSHEET 3 CONTRACT FARMING

89

5.

JOINT VENTURE SUMMARY

6.

TAXATION AND LEGAL STRUCTURES

7.

CONCLUSION

10

11 17

18

Prepared for DairyCo by The Andersons Centre, September 2009. Based upon the Collaborative
Ventures work undertaken by Dairy Development Centre, Wales, and farming Connect under
European Union Objective 1 funding.

AHDB, operating through its DairyCo division, seeks to ensure that the information contained within this
document is accurate at the time of printing. No warranty is given in respect thereof and, to the
maximum extent permitted by law the Agriculture and Horticulture Development Board accepts no
liability for loss, damage or injury howsoever caused (including that caused by negligence) or suffered
directly or indirectly in relation to information and opinions contained in or omitted from this document.

Copyright, Agriculture and Horticulture Development Board 2010. All rights reserved. No part of this
publication may be reproduced in any material form (including by photocopy or storage in any medium
by electronic means) or any copy or adaptation stored, published or distributed (by physical, electronic
or other means) without the prior permission in writing of the Agriculture and Horticulture Development
Board, other than by reproduction in an unmodified form for the sole purpose of use as an information
resource when the Agriculture and Horticulture Development Board [OR (Sector Name)] is clearly
acknowledged as the source, or in accordance with the provisions of the Copyright, Designs and
Patents Act 1988. All rights reserved.
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1.

INTRODUCTION

Joint ventures have become more popular over the last 20-30 years. Although the dairy industry
is still dominated by owner occupiers and tenants there are an increasing number of farmers
looking to evolve their businesses by adopting a joint venture business structure. The reasons for
the rise in popularity of the joint venture structure are many and varied; principally the decline in
young entrants to the industry has meant that farmers who do not wish to fully retire from
agriculture are looking to alternative methods to stay involved in agriculture without their
contribution being so physically demanding. Joint ventures offer a continuation of business
trading whilst also allowing a semi-retirement from daily activities. There are limited options for
farmers at this stage of their farming career to take, which give the same benefits as a joint
venture arrangement. In addition, joint ventures can provide a profitable combination of skills and
resources allowing all parties involved to grow in terms of business and wealth creation. It
essentially allows an alternative career pathway for managers, herdsmen, farmers sons or
daughters, waiting to establish a business in dairy farming. In many cases this would not be
economically feasible if the traditional route of trying to secure a farm business tenancy was
pursued, due to the high capital start up costs and often in respect of council tenancies the size of
holding is limiting.

Joint venture agreements offer the opportunity to maximise financial benefits to the business
(includes taxation benefits to the farm owner) whilst also presenting an opportunity in some cases
for expansion. The result is both an improvement in production efficiencies and an increase in
economies of scale e.g. reduction in costs and maximise output.

The purpose of this review is to provide a clear understanding of the range of joint venture
structures that exist and what each has to offer to existing farmers and new entrants to the dairy
industry.

There are three main structures for the establishment of a collaborative venture in dairy farming,
these are:

Equity Partnerships

Sharemilking

Contract Farming

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2.

EQUITY PARTNERSHIPS

What are they?

Equity partnerships in agriculture are about bringing together farmers (people) to combine skills
and capital for the purpose of generating income and maximising the return on their capital
investment in the farm business. They can challenge the previous farming model of family farm
businesses and create new opportunities in the agricultural sector for those who are unable to
finance a farm business tenancy or farm ownership.

Who is suitable for an equity partnership?

In the UK equity partnerships have evolved from the family partnership structure, to include
partnerships with separate non family businesses that share common objectives.

A landowner or tenant may enter into a partnership with a third party farmer or non-farmer (e.g.
herdsman).

The objective being to join together separate skill sets so that both parties profit from
improvements in technical and business performance whilst making more efficient use of capital
and in some cases grow the business.

Skills required

Farm management management of the production system, a proven track record in

above average technical and business performance is required

Finance and accounting; financial budgets and feed budgets

Strategic and operational management and planning

Human resources (depends on farm size)

A focussed, professional approach by both (all) partners is required in order to ensure

increased levels of profitability and annual growth in returns on capital investment.

A quality equity partnership should have:

A well drafted contractual agreement which covers all aspects of the business
partnership

A clear business plan which includes the faming policy to be adopted, a capital
expenditure budget, projections for production and realistic costs. A five year plan is the
minimum, which should show the forecasted rate of return for each partner.

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An agreement in place that indicates how the financial surplus is to be shared by each
party at the year end. The agreement should reflect capital shares held by each partner.

A communication plan between partners. This should include a monthly farm report and
budget verses actual report circulated to both (all) partners.

The agreement should demonstrate a plan for the investment period

An exit strategy for all partners should be detailed prior to commencing with the
partnership.

The business should be operated at an acceptable level of risk to all partners

The roles and responsibilities of each equity partner need clearly defining from the outset
of the partnership.

All employed staff should have employment contracts and job descriptions

A detailed procedure should be documented for resolving any disputes that may arise

A statement of income and expenditure for the financial year should be furnished not
more than 4 months after the end of the financial year.

Strengths

The resulting equity partnership provides tax efficiencies for all parties.

The partnership provides economy of scale. It allows involvement in a large farm

business that would otherwise be denied to a farm-worker/manager as capital would be
the limiting factor.

For the manager/farm worker who becomes the equity partner it is the first step towards
the opportunity to farm in your own right e.g. it could lead to a farm business tenancy if
the equity in livestock increases each year.

The ability to share knowledge and experiences with others of differing skill sets adds
motivation to the partnership.

Ability for the farm owner to reduce physical involvement with the farm and create time for
involvement in other projects/businesses or just increase time spent with the family.

May allow the farm owner to achieve expansion without extra work.

Weaknesses

The responsibilities of each partner, if not clearly defined from the outset can make
decision making bureaucratic and confusing

Disputes are more likely to be associated with budgeting so this needs to be agreed by
both (all) parties

Changes in either business or personal objectives by one or both partners means that
there are no longer synergies in the partnership causing a divergence from the agreed
plan

Poor business & technical performance means insufficient profit for the partners

Lack of trust and respect between partners can result in business failure
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Summary
Each partnership will be different in its set up as capital available between partners and the size
of farm enterprise varies.

The partners must approach the venture with professionalism, fairness and transparency in order
for the venture to succeed.

A financially sound business, a shared vision, personal compatibility and good communication are
the keys to success of the partnership.

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3.

SHAREMILKING

What is it?
A share-farming agreement involves a tenant or farm owner (the landowner) entering into a joint
venture with another person (the share farmer). The sharefarmer may be a neighbouring farmer,
manager or herdsman. The sharefarmer operates the farm for an agreed share of the farm
income. It can allow a farm owner to discontinue milking cows whilst retaining a reasonable
income and return for his investment and time.

How does it operate?

A landowner or tenant provides the land and fixed equipment/milk quota.

The share farmer may bring labour (his/her own labour as well as hired in if necessary),
machinery and expertise.

The livestock (dairy cows and replacements) may be solely or jointly owned by either
business.

An agreement is made prior to commencement of the share-farming activity which

determines the agreed ratio of returns based on the value of each persons contribution.

Direct costs are shared in the same way e.g. at the agreed ratio. This includes direct
inputs such as feed, fertiliser, vet, water and electricity costs.

The financial surplus at the year end in is shared in the same proportion as the
expenditure on direct inputs

The minimum term is usually three years but renewable at this point if the agreement has
been successful

3.1

OVERSEAS EXPERIENCE

Share farming has been a traditional pathway to farm ownership in New Zealand and Australia for
many years. Agreements are regulated by the Share milking Agreements Act of 1937 and the
Share milking Agreements Order 2001 in New Zealand for variable order arrangements. The two
types of arrangement are Variable Order (or Low Order) sharemilker or 50:50sharemilker. A
50:50 share milker provides the management, the livestock, machinery and labour. In return he
receives a 50% share of the milk income and calf and cull income. The variable order share
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milkers share can vary but is normally a calculated percentage of the annual milk receipts. The
2001 regulation stipulates that the Variable order share milker must receive 21% of milk receipts
(net of farm operating expenses) where the herd size is less than 300 cows. The farm owner
provides the land, stock and buildings and the sharemilker provides labour, small plant such as a
quad/motorbike, electricity costs and rubberware costs.

The sharemilker in both 50:50 and variable order agreements has to cover the cost of penalty
payments imposed by the Dairy Company due to a downgrade in milk quality for hygiene or cell
counts. A licence with the sharemilker is usually created rather than a leasing arrangement to
avoid complications over land tenure.

In the UK the Single Farm Payment and Environmental Scheme payments can add complexity to
agreements. The division of this income must be settled on prior to commencement of the
agreement. The share would be closer to 70:30 in favour of the share milker in the UK, to cover
the higher winter housing and feed costs compared to the NZ 50:50 share milker arrangements.

Strengths: Sharemilker

Can provide career progression to a farm tenancy or equity partnership for the
sharemilker

Provides entry into the dairy industry with little or no capital

Assets are transferable by the share milker if a larger farming opportunity presents
itself

Allows the sharemilker to develop man management skills

Provides a return on capital invested; wealth creation by growing their equity in

livestock

Self motivation is enhanced because the sharemilker is working for themselves rather
than being employed

Usually brings enthusiasm and a passion to succeed/work hard

A shrinking skilled labour force in the UK Dairy industry means there is the
opportunity in the future for dedicated and professional young farmers to select the
best share milking business on offer.

Strengths: Farmer/Landowner

Provides tax efficiency for the land owner

Allows the landowner to retire gradually from the business and take a step back from
day to day management

Increased profitability from economies of scale

Technical expertise of the sharemilker brings improved returns

Regulated by a formal contract

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Each party operates their own business

The farmer has no employment costs or commitment

Weaknesses

The length of any agreement may be limited if the share milker has the opportunity to
move to a larger farm business but this can be defined

A variable profit margin means both farmer and sharemilker need to be top 10%
operators in order to secure adequate returns for each party.

Availability of share milking opportunities are few in the UK as it is a relatively unknown

structure in UK agriculture. This would also present difficulties for the sharemilker to
progress from a small share milking role to a larger scale opportunity.

Higher risks for the sharemilker as cow values can fluctuate which means they cannot be
confident of making a profit if the cows have to be sold at the end of the agreement

Administration of the agreement can be complex

Summary

The budgets for a share milking arrangement are farm specific and must reflect the ratio in which
both costs and returns are to be allocated on that particular holding as well as reflecting the
requirements of the milk contract e.g. spring or autumn block calving.

A share-milking contract offers the opportunity to encourage the next generation into the farm
business where in the past the capital required to start up would have been prohibitive.

The terms of the share milking agreement must be thoroughly discussed and agreed prior to
commencement of the joint venture in order to ensure both parties are protected and all
requirements are agreed.

There must be a structure in place to develop the management skills of the sharemilker.
Choosing the right partner for a share milking opportunity is critical to success.

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4.

CONTRACT FARMING

What is it?

Contract farming evolved in the 1970s and is principally an agreement between a farmer and a
contractor or another farmer. The contractor supplies labour, management and machinery and
the landowner provides land, buildings and milk quota.

The dairy herd can be owned by the farmer or the contractor. A cow hire agreement may
be put in place to manage the livestock ownership.

The farming policy is decided and agreed by both parties prior to commencement of the
agreement.

The contractor will receive a basic fee for the services provided which includes
management, labour and power, plus a majority share of the financial surplus from the
venture. The financial incentive motivates the contractor to perform well.

The farmer retains a basic fee and receives a small share of the financial surplus.

The farmer provides a bank account dedicated to the business with the contractor only.
From this the farmer pays the bills and receives the farm income. The contractor fee is
paid from this farm account

The farmer must be seen to be actively involved in the farm business to optimise tax relief
available.

The agreement should clearly define the roles and responsibilities clearly for each party.

Strengths - Farmer

Creates economies of scale

Avoids employment liabilities

The capital cost of machinery is realised so capital is available to employ in other

businesses and/or reduce debt

A formal contract provides regulation and guidelines

Tax relief; provided farmer remains actively in business

Good returns

Strengths - Contractor
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Economy of scale

Can provide for rapid expansion

More than one agreement can be in operation at any one time

Still receive a basic contractors fee even in a poor returns year

Weaknesses

Administration costs are higher than a straightforward Farm Business Tenancy

Relies on both parties working well together

Poorly established agreement can lead to early termination of a contract if the agreement
has insufficient returns to either party.

Summary
Similar to other joint venture agreements, a successful contract farming agreement relies on a
well established agreement, good administration and good returns to both the contractor and the
farmer.

Good communication between parties is essential to success as is a mix of excellent technical

skills with equally excellent business expertise.

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5.

JOINT VENTURE SUMMARY

Equity
Partnerships

Structure
Limited Liability

Who?
Landowner or tenant

Partnership

forms partnership with

another farmer, manager

Limited Company

Sharemilking

Contract Farming

or herdsperson

Management
Requirements
Monthly meetings
incorporating:
Financial reports
Technical reports
Human resources reporting
(depends on size of
business)
Excellent communication
skills
Dependent on the selection
of a suitable sharemilker.
May need investment in
managerial & technical
skills of sharemilker to
secure success

Farmer and

Landowner or tenant

sharemilker trade

collaborates with

as separate entities

existing/new herdsperson

(sole trader).

or manager

Farmer and

Landowner or tenant

Monthly meetings

contractor trade as

forms collaboration with

incorporating:

separate

contractor who in most

Financial reports

businesses (sole

cases is another farmer

Technical reports

trader)

Excellent communication
skills

Reasons for Success

Partners with complimentary skills
Increased profits & good returns to each
partner
Respect and trust between partners
Agreement in place prior to
commencement of business
Allows development from a low capital
share to potentially 100% asset growth.
Motivation of the sharemilker to succeed
Good returns to the sharemilker and the
farmer
Administration of the agreement is good
from the beginning
Clear & well structured agreement from the
outset
Communication is good between farmer
and contractor
Financial results are monitored and
budgets updated
Business growth and good returns to each
person

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6.

TAXATION & LEGAL STRUCTURES

Before entering into a joint venture it is essential to determine the most suitable structure to
operate under for both taxation and legal purposes. This can be a complex process so the advice
of both an accountant and a solicitor with experience of joint venture trading must be sort.

6.1

LEGAL STRUCTURE

The most commonly used joint venture arrangement for farmers is a general partnership. It is
created under the Partnership Act 1890 which provides that it is an agreement entered into
between persons carrying on a business in common with a view of profit. Although the
Partnership Act 1890 sets out criteria for determining whether a partnership exists in a particular
case, it does not provide any further requirements and does not impose any rules on the parties.
The parties are free to agree their own terms in the arrangement (within the normal limits of the
law of contract).

Since the passing of the Limited Liability Partnerships Act 2000, it has become possible to use a
limited liability partnership.

A significant consequence of farming in a general partnership is the fact that the parties will
become jointly and severally liable for each others debts. Put simply this means that a creditor
could sue any member of the partnership for the whole of any debt incurred by any of the
partners in the course of that business.

Apart from liability, one of the most important issues to consider when entering into a farming
partnership is how to deal with the land itself. The law governing the occupation of land used for
farming is relatively complicated and if the landowner is to preserve the right to obtain vacant
possession of the land at the end of the partnership, this must be addressed very carefully. If the
partnership is a commercial arrangement, very often the partnership will be given a non-exclusive
licence to share occupation of the land with the landowner. In other circumstances, however, the
land may be made an asset of the partnership, although this may well have significant tax
implications. A third possibility is that the partnership is granted a farm business tenancy of the
land and pays a commercial rent to the landowner.
In the context of all farms, but dairy farms in particular, the occupation of the land is also
important in relation to milk quota and other subsidies. Milk quota is apportioned to land taking
account of the areas used by the producer for milk production. Other subsidies are also
dependent on the farming of appropriate areas of land. The relationship between the land owner
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and the producer or farmer registered to hold quota or entitlements etc. and receive the relevant
subsidies must therefore be addressed specifically when the partnership is created.

It is possible to create a partnership and continue farming for many years without any form of
documentation. As soon as the arrangement fulfils the definition of a partnership in the
Partnership Act, a partnership is deemed to have been created. In view, however, of the
complications of modern farming and the risk that any final division of the assets may not reflect
the respective contributions of the parties, it is essential that a properly drawn partnership
agreement is prepared at the outset. This agreement can then deal with matters such as capital
contributions, share of profits, ownership and use of quotas and subsidies, occupation of the land,
termination of the partnership, division of assets etc.
6.2

TAXATION OF GENERAL PARTNERSHIPS

Where the farm business is run as a general partnership each partner must file an individual self
assessment return plus a partnership return which shows the profit or loss from trading. Each
partner is personally responsible for paying Class 4 national insurance contributions and tax due
on their share of the partnership profits. If partners are self employed they are expected to pay
their own national insurance contributions. Profits are shared according to the partnership
agreement.

6.3

LIMITED LIABILITY PARTNERSHIP (LLP)

A Limited Liability Partnership allows partners to limit their personal liability. Essentially the LLP
is run and taxed like a partnership, but partners are able to limit the level of their own personal
liability. This differs from a normal partnership arrangement where both partners are jointly and
severally liable for partnership debts. In an LLP the partners are also not responsible for the
actions of their partner. LLPs are incorporated and registered at Companies House, Cardiff and
each LLP must have a registered office. There is a charge applied for registration and
incorporation of the LLP.

The partners are taxed as individuals under schedule D (which means they are better off ) and
pay Class 2 national insurance contributions (self employed). Class 4 National Insurance
contributions are also payable should certain profit levels be achieved. This is at a rate of 8% of
taxable profits capped; an uncapped further liability of 1% may also need to be paid.

Profits are shared according to the agreed percentages. Each individual is then responsible for
paying income tax for the profits generated by completing the partnership form of the self
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assessment return. The LLPs tax return shows the calculation of taxable profits and the
allocation between the partners of the LLP.

Each partners liability is restricted to the amount of their capital held in the business. Any capital
gains arising from the sale of assets from the LLP are treated as if held by the individual partners
of the LLP and they are therefore taxed on them separately.

Each year the accounts and an annual tax return must be filed with Companies House to keep
records up to date. This information is available to the public. Any changes to the membership of
the LLP must be notified to Companies House immediately. The name of the LLP must be clearly
identified to the place of business and on all correspondence sent out by the business.

HMRC (Her Majestys Revenue and Customs) must be notified of the formation of an LLP so that
the appropriate tax returns are completed each year.
Tax is due twice yearly as for a normal partnership (31st January and 31 July with the balancing
payment on 31st January after the previous tax year.)

6.4

LIMITED COMPANY

A farming business can also be run as a Limited Company although this structure is less common
in the UK agriculture. This usually has the structure of a private company limited by shares. A
private company cannot offer its shares for sale to the general public.

Shares would be held in the company by the participants to reflect each individuals stake in the
company. This will enable the shareholders rights to business profits via the payment of
dividends. Individuals can participate as both shareholders and directors of the company. The
directors can be employees of the company. The liability of the shareholders of the company is
limited to the effective value of the shares held.

A company pays tax on its profits and the companies directors are taxed on what they receive in
remuneration from the company. In a partnership arrangement, typical of many dairy farms each
partner is taxed on their share of the profit e.g. taxation has no bearing on how much or how little
they may have withdrawn from the business.
It is also possible for the director/shareholder to take a nominal salary in a limited company
structure and receive money as dividends.

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A Limited Company must also be registered with Companies House in Cardiff and accounts must
be filed with Companies House each year. The registration of a new Company with Companies
House also bears a cost of 20.

Each company must file an annual return with Companies House within 28 days after the
anniversary of incorporation. The return should reflect the management structure (directors and
shareholders) and capital (if applicable) of the company.

HMRC must be notified of the Companies existence so they issue the correct tax return.

Company accounts must be provided for directors but also filed with Companies House no later
than nine months after the year end (April 6th 2008). An automatic penalty will be issued if the
accounts are not filed within the required time frame.

Corporation tax is due 9 months after the last day of the annual accounting period and is before
the deadline to file the company tax return which must be filed 12 months after the end of the
companys accounting period. The rate of corporation tax is 21% on profits below 300,000,
29.75% on the next 1,200,000 and 28% for companies with a profit of 1,500,000 or more.

Accountancy costs tend to be increased for limited companies and can be as much as one and a
half to two times more than normal sole trader or partnership accounts.

6.5

CONTRACT FARMING and SHAREMILKING

Legal Structure
Contract Farming Arrangements and Share Farming Agreements are joint ventures which are not
intended to create partnerships between the parties. Under a contract farming agreement a
farmer employs a third party either to carry out specific tasks for him, or to be responsible for a
part of his farming operations. In share farming arrangements the landowner and share farmer
cooperate over the farming, but maintain their own separate businesses.

Contract Farming Agreements

Contract Farming Agreements have become extremely popular over the past 20 years enabling
landowners to remain in business but delegate certain tasks or areas of responsibility to
contractors. The contractor is self employed and care must be taken to ensure that this status is
maintained and that he is not deemed for tax or other purposes to have become an employee.

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The contractor is given access to the farm land to enable him to fulfil his duties but he will not
acquire any rights of occupation whatsoever.

The contractor will receive a contracting fee for his work which is payable whether or not there is
any profit from the farming of the land. Over and above this basic contracting fee, contractors are
often then given a share in the profits of the enterprise produced for the farmer.

In relation to milk quotas and Single Payment Scheme entitlements it is the farmer who will
generally hold and claim these subsidies and quotas.

As with partnerships, it is possible to appoint a contractor without reducing the terms of the
arrangement to writing. Without written terms there is always the potential, however, for
misunderstanding between the parties, particularly in relation to the sharing out of profits and
issues arising on termination of the arrangement. The very process of preparing a contracting
agreement will often focus the parties minds on the various issues which they need to agree at
the outset.

Share Farming Agreements

Share farming arrangements are, in structure, very close to partnerships. Although they are
distinct, that distinction can sometimes become blurred and there is always a danger that the
parties could find themselves farming in partnership, rather than under a share farming
agreement. With the joint and several liability of partners mentioned above this could result in
disastrous consequences.

Essentially for a share farming arrangement to exist the parties must each carry on their own
separate business so that expenditure and receipts from the joint venture are expenditure and
receipts of the respective separate businesses. There is no joint business set up between them.
The arrangement is simply one for the sharing of gross returns and not for the sharing of profits.

With this structure HM Revenue and Customs has accepted that for VAT and other tax purposes
there is no separate joint venture business requiring separate registration and tax returns.

Although each arrangement will vary, the landowner usually provides the use of the land and
buildings and often the inputs to the crops. The share farmer provides the labour and machinery
and possibly some of the inputs. The crops in the ground remain the property of the landowner
and the share farmer receives a share in the gross proceeds of sale of the crops. Although

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sometimes seen in practice, it is advisable to ensure that the parties contribute separate inputs
rather than share in any expense in order to reduce the risk of the arrangement being deemed to
be a separate business and fulfilling the definition of a partnership.

As part of the arrangement the landowner will allow the share farmer access to his land but he
will not be granted rights of occupation. The position regarding quotas and single payment
scheme entitlements can be complicated depending on the respective assets and positions of the
parties. Under the Single Payment Scheme it is usually the landowner who will hold the
entitlements having been allocated them as occupier of the land, although this can vary according
to the situation. The share farming agreement should deal with the ownership and use of any
quotas and subsidies and especially should determine what should happen to them on
termination of the arrangement.

6.6

TAXATION

The structure of a contract farming or share milking activity must be such that the farmer can be
seen to be actively involved in the farming activity otherwise HMRC may take the view he is
simply accepting a rent and not involved in taking any risk. The farmer cannot have a guaranteed
return as no risk equals rent in the eyes of HMRC. A contract farming agreement must not in any
way reflect a tenancy or partnership otherwise taxation advantages cannot be claimed. Both the
farmer and the contractor each have their own business and keep separate accounts. The
farmer must take an active part in the trading of the business in order to qualify for the agreement
to satisfy HMRC that it is contract farming.

The continuing status of actively farming enables the ability to take advantage of capital gains tax
relief, inheritance tax relief and remain in schedule D banding for income tax purposes.

6.7

TAXATION BENEFITS OF REMAINING A FARMER

Capital Gains Tax: Relief

Capital gains tax is charged to individuals on the disposal of assets if they are sold for more than
the acquisition value. The current rate of charges is 18%. However, rollover relief can be
claimed as a deferral mechanism when the sale of business assets are made in order to
purchase other business assets. There is a re-investment period which is effective from one year
before the disposal of the existing asset to three years after is sold. If there is an excess from the

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sale which is not rolled over into new assets than capital gains tax will be charged on the excess.
Clearly, this is a tax advantage worth securing in the formation of a joint venture.

Inheritance Tax Relief

In addition to capital gains tax relief inheritance tax relief can be secured as Agricultural Property
Relief (APR) and Business Property Relief (BPR). APR gives 100% relief from inheritance tax on
owner occupied farmland providing the transferor has owned the land for seven years or has
farmed the land for two years.
BPR

The sharemilker or contractor is normally self employed and must therefore keep their own set of
accounts for taxation purposes. It is important the contractor or sharemilker can demonstrate
trading income and expenses and not a single affiliation to one person or firm as this can be seen
as being employed by HMRC. Care must be taken in setting up agreements to ensure this does
not occur. Each party must show the necessary risk and reward from being involved in the
business to demonstrate to HMRC there is clarity of active farming activities for all parties
involved.

Herd Basis Taxation

Animals kept for production purposes rather than as trading stock can be set up on a herd basis
for taxation purposes. The herd is treated more like a capital asset and not included in trading
stock. This means the cost of maintaining the herd can be charged against tax and any profit on
its eventual disposal will be tax free. Any person involved in milk production can elect for herd
basis. The farmer must elect for herd basis within a two year period of the first accounting date.
However, if a new partner is brought into the business or the legal entity of the business changes
herd basis can be elected at this point.

Tax Averaging

LLPs, partnerships and sole traders can also benefit from tax relief by averaging profits if profits
made fluctuate widely over a two year period, e.g. by more than 30% of the higher of the two
figures of profit. The profit of the later year becomes the sum of the two profits divided by 2, thus
reducing the tax liability.

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Joint Ventures Project Report

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7.

CONCLUSION

Joint ventures present an opportunity for farmers, managers and new entrants to the dairy
industry to benefit from a mix of skills, capital and a commitment to successful dairy farming for
the future. The key element to any joint venture is the combination of the correct business
people. Each person involved should research the others background to be certain they want to
work together. A joint venture is a team effort where the team work with the best interests of the
business as the main focus. Those people that show an aptitude for continuous progression and
improvement in both management and technical skills are those best suited to a joint venture.
Each person involved must share common goals, although a change in personal goals should be
expected as people mature. Communication, trust and honesty between joint venture partners
are the most important elements to a successful joint venture.

All parties involved in a joint venture must be prepared to adapt to achieve what is right for the
business. Positive and progressive farmers e.g. of the can do attitude will be more likely to
succeed. There must however be a calculated level of financial risk for each party to avoid the
potential early failure of an agreement where working capital is limited. The future shortage of
skilled labour within the UK dairy industry is a threat that may encourage more owner occupiers
to look at joint venture partners. In many cases it would be beneficial to start a joint venture as a
sharemilker or contract farmer and progress to an equity partner to ensure a good working
relationship before both (all) parties commit capital to the venture.

Before entering into a joint venture professional advice should be sought from such people as a
farm accountant, solicitor, farm consultant, banker and also persons who have experience of
operating in a joint venture business. It may be necessary where there are more than two joint
venture partners to employ a chairperson to facilitate meetings in order for all parties to have their
say.

Joint ventures offer an alternative pathway for those involved in dairying to start or develop their
careers. For all those involved the set up, ongoing management and exit strategy must be
professionally executed to ensure the success of the venture.

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