New business structures create new opportunities

Published 15 August 15

Article 8Where farmers used to operate only as sole traders, partners and limited companies, new business structures are introducing exciting opportunities for people to work together, said accountant Rob Hitch at the workshop.

He highlighted the success of the joint venture structure undertaken by Robert and Steve at Dolphenby, but also talked about other share and contract farming arrangements.

“Almost any business structure is possible now,” he explained. “It depends on who owns what, who is doing the work and how you want to carve up the profits. There is no right and wrong – it’s up to the accountant to set up the business to suit the parties involved.

“In most cases, the biggest issues to overcome are protecting the capital values of land and buildings from Capital Gains Tax or Inheritance Tax; fortunately, the tax treatment of these assets is rather benign as long as there is just ‘agricultural value’ and no development potential.

“However, most people starting out with no capital want to progress to a situation where they own some of the assets in the business – and, on a dairy farm, that most commonly begins with cows.”

Rob explained that share farming was like “partnership lite”– a stepping stone to becoming an equity partner at some point in the future, a path which had already been well trodden in countries like New Zealand.

“But arrangements between established businesses can work equally well. It doesn’t have to be farming joint ventures either; it could mean farmers with complementary enterprises working together, or sharing big capital items. Whatever the arrangement looks like, there’s a need for mutual respect as different partners will often bring different skills to the party – that’s the whole point. But, as long as that’s known at the start, they can work very well.”

Rob advised anyone thinking of an opportunity to approach it proactively. “Just ask. Often, the other party may not have considered the options open to them so presenting the idea can set the ball rolling.”     

AHDB Dairy has a number of Joint Venture guidance notes and template contract/agreements for levy payers to access and benefit from. To receive them please contact rachael.chamberlayne@ahdb.org.uk

Or further information can be found in the business-management section of the website.

 

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