Sep 26
5 min read
More farms are looking at contract farming agreements (CFAs) and share farming arrangements as an alternative to running everything themselves or letting land out entirely and we’re seeing renewed interest in both as labour costs, input prices and succession planning push farming businesses to rethink. The two structures are often talked about as if they’re the same, however, there are important differences.
Contract farming is “farming with contractors.” The landowner remains the sole farmer and sole occupier of the land. A contractor is brought in to provide labour, machinery and expertise, usually paid a guaranteed fee per acre plus a share of profits as an incentive. But the farming business, the output, and the tax liability all belong to the landowner. The contractor is providing a service, not running a farming business of their own on that land.
Share farming is structurally different. Under a share farming agreement, the landowner and the share farmer are each treated as carrying on the farming trade. Two businesses operate side by side one usually providing land, buildings and fixed equipment, the other providing working capital, labour and machinery. Each party pays and takes a share of the inputs and sales based on the agreed shares. There is no guaranteed payment and as such the risk is shared between the parties
Why the paperwork has to match reality
HMRC doesn’t accept a contract farming agreement at face value just because the document is labelled as one. What matters is whether the terms genuinely reflect a landowner running the business and bearing the risk, or whether the arrangement looks more like a tenancy. Where an agreement is badly worded or, more importantly, badly operated, HMRC can look through the label and treat it as something else entirely.
In practice, that means the landowner genuinely needs to be making core business decisions such as what’s grown, when it’s sold and how the farm account is run. In other words, there’s a need to carry real financial risk from the farming activity, not simply collect a fixed fee dressed up as a farming profit. Invoices addressed to the farm rather than the contractor, the landowner’s name on agronomy and marketing decisions, and a farm bank account the landowner actually controls are the kind of evidence that supports the agreement doing what it says on paper.
Tax reliefs
The reason these structures get so much attention isn’t just operational it’s about maintaining “farmer” status for tax purposes, particularly for Agricultural Property Relief (APR) and Business Property Relief (BPR) and continued access to income tax reliefs tied to trading. A landowner who simply lets land out under a tenancy is generally treated as an investor, not a farmer. Structuring the arrangement instead as a CFA or share farming agreement, where the landowner remains actively farming (or, in share farming, is trading in their own right), is often what keeps that “farmer” or “trading” status intact.
Share farming in particular has a specific advantage here. Because both parties are separately trading, HMRC treats share farming as a genuine trading activity for the landowner, which helps satisfy the threshold that a business needs to be more than 50% trading to qualify for BPR. Additionally, APR is preserved on the farmhouse when the landowner is farming.
VAT and accounting mechanics differ too
Under a CFA, there’s one farming business and one set of VAT returns, the landowner’s. The contractor charges VAT on their services in the normal way, and the landowner reclaims it through their farming business, the same as any other supplier invoice.
Under share farming, there are two VAT-registered businesses, each accounting for their own share of output and costs. This needs genuinely separate bookkeeping, not just a notional split of one set of figures.
Why share farming is gaining ground on CFAs
One practical driver worth flagging to clients considering either route is that a CFA typically requires the landowner to fund the working capital and cover most costs upfront, paying the contractor largely in advance of the harvest or output being sold. Share farming spreads that funding differently, since the share farmer is contributing their own machinery and working capital as a genuine co-venturer rather than a paid contractor waiting to be reimbursed. For landowners with tighter cashflow, or those wanting a contractor with more skin in the game, that difference in funding structure is often as important as the tax treatment.
Practical steps before signing anything
Summary
Contract farming and share farming solve similar problems; bringing in expertise, machinery and labour without a tenancy but they are different. That distinction drives the VAT treatment, the accounting, and critically, whether the landowner keeps the active farmer status that much of their wider tax position depends on. The label on the agreement matters far less than whether what happens on the ground.
If you’re considering a contract farming or share farming arrangement, or want an existing agreement reviewed, get in touch and we’ll work through it with you.
Robert Black
Black Acre Rural Limited
07595 662661
This article is for general guidance only and doesn’t constitute tax advice specific to your circumstances.