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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Farming in tax law: arrangements which are not share farming

S996(1) Income Tax Act 2007, S1125 Corporation Tax Act 2010

Some arrangements which are presented as share farming agreements may not be genuine. The landowner may want the tax and other advantages of share farming without the disadvantages of actually farming. For example he or she may want, in effect, a landowner’s guaranteed rental return and he or she may persuade the share farmer to pay him a minimum whatever the agreement says.

For an agreement to be share farming it is essential that each party has their own business, albeit that the two businesses are very closely linked. The landowner must take an active part in the trading venture, at least to the extent of concerning himself with the details of some material aspect, if only limited to inspection and policy making. The following are unlikely to be share farming arrangements:

  • an agreement to split the net profits and losses of the entire activity on the land. Such an agreement is likely to be a partnership.
  • an agreement which gives the landowner a guaranteed minimum return. The landowner’s income in such circumstances is likely to be liable as property income.
  • A contract farming agreement (see BIM55090).

In deciding whether or not there is share farming, the actual activities of the parties should be considered. They may differ materially from what is provided in the written agreement, but see BIM55085.