A number of factors have conspired recently to make farming a much more exciting prospect than it has been for a number of years.

Increasing global food consumption, low grain maize stocks in the US, rising oil prices and a weak pound have all led to higher commodity prices in the arable sector and some livestock sectors, resulting in greater farming profits. This is good news for the agricultural industry, which has undoubtedly gone through some tough times, and we're now starting to see more young people wanting to be part of a revival in farming. There is also a desire from government to reverse the
trend of falling self-suficiency in the UK. As a landowner or farmer, are you making the most of these improvements in profits? Restructuring your business could help improve it in the long term.

Landowners and landed estates

You may currently be structured in such a way as to let land on an Agricultural Holdings Act tenancy, a Farm Business Tenancy (FBT) or both. Improving farming profits should in most cases push up rental values, so it may be perfectly acceptable to continue with these. However, a number of estates that have relied on Agricultural Property Relief in the past are now finding that they face the prospect of a substantial Inheritance Tax liability from houses and cottages, and are instead moving towards running trading businesses where Business Property Relief (BPR) may apply.

The higher profits in farming make it worth looking at directly as part of the overall business. Farming with contractors, probably on a performance-related basis, is the most likely solution, as it does not require investment in machinery. You could possibly use an existing tenant, although share farming or full in-hand farming are options, too. Care should be taken with the recent proposals in the Common Agricultural Policy reform effectively creating a 'golden ticket' for the 2011 claimant, so seeking professional advice is strongly recommended before heading down this route.

The 2010 case of HMRC v Brander endorsed the principles established in the earlier Farmer case. Owners of businesses that are wholly or mainly trading can be more conident that BPR should be available for their farming, woodland and shooting enterprises, and possibly let property, too. The key elements critical to afirmation of a Corporate structures trading business are:

• Capital value
• Turnover
• Net profit
• Time spent by trader/employees
• Overall context.

A move to farming with contractors may not only improve the revenue profit, but also tip the balance with a significant capital taxation benefit.

Farming with contractors

For those already employing contractors on performance-related contracts, it may be time to review things. There is a move to splitting the divisible surplus on a 50:50 ratio, and for there to be a 'super profit tier' for the farmer in some cases. Existing farmers employing contractors may wish to investigate going in-hand, particularly for businesses over 1,000 acres. It will mean a capital injection into machinery, but many large professional farming businesses are happy to contract hire equipment, reducing initial capital costs significantly. You will also need to find good labour, but this can be recruited in with the right guidance.

Farming in-hand

For those farming now, the big question is, 'Are you doing well enough?' Strutt & Parker's extensive benchmarking service enables us to compare different businesses and determine whether they are performing well and where improvements can be made. Management profits can be compared to many other businesses, as well as to options such as farming with contractors and FBTs. 
An experienced analysis can often show 'easy wins' to improved financial performance.

Corporate structures

Traditionally, farmers and landowners have traded as sole traders or in partnerships. The latter can be a good vehicle to run combined trading and
investment businesses, though care must be taken to ensure there are no adverse tax implications. Companies have been used sparingly in the past, often because of apparent 'double taxation' and the implications of Income Tax on benefits in kind, but high Income Tax and lowering Corporation Tax rates have made them more attractive. A corporate partner may not be the answer, but a
company to employ labour and fund and run the machinery could be. There is no 'one size fits all', so each case needs to be considered separately.

Farming may be a great industry to be in right now, but there are always ways to improve and fine-tune performance to ensure the business is sustainable for the next generation.