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Farmers are being warned to take extra care when setting up and entering into a contract farming agreement to ensure they can show they remain active or they could risk their status and face a legal challenge which may also have an implication on their tax position.

This follows a recent court case in Scotland, Fyffe v Esslemont, regarding a farmer with a secure agricultural tenancy who contracted out his farming activities resulting in him losing his statutory protection. In essence, the farmer was seen to have abandoned use of the farm for agriculture for the purpose of a trade or business.

The arable contract was seen to be a ‘sham’ when it was found to have been designed to avoid looking like subletting, when in fact it meant the farmer had no day-to-day involvement in the business and was not exposed to any business risk.

The Scottish Land Court described some key features of a ‘true contracting agreement’ including; a form of contract for services under which the landowner engages an individual or corporate entity to farm the land on his behalf, contractor to provide the labour and equipment and the farmer assumes risk with regard to his income.

The Central Association of Agricultural Valuers (CAAV) has warned this case could be used in similar situations in England therefore in order to protect your position, it is imperative you seek professional advice when thinking of entering into such an agreement.

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