Leaked proposals for the reform of CAP entitlements – leave a narrow window for restructuring farm businesses

News has recently been leaked from the European Commission that farmers who claim more than €150,000 from the direct support element of the CAP (Pillar1), will see their entitlement payments progressively capped. Saffery Champness say this will come as no surprise to those who heard the European Agriculture Commissioner, Declan Ciolos, speak at the 2011 Oxford Farming conference last January. However, some of the leaked details, such as the impact of using external contractors, will cause alarm.

Commenting on the leaked proposals Mike Harrison, a partner of Saffery Champness Landed Estates & Rural Business Group, says: "There is a strongly worded proposal for progressive cuts in the entitlement payments above €150,000 ( £127,000) with a cap of €300,000 (£255,000)".

Whilst the new regulations will apparently incorporate an allowance which reflects the farm’s wages bill, which is welcome news and should mean that both larger and smaller farms are treated equally, there will be a discrimination for those using external contractors.

The Country Land and Business Association (CLA) have recently illustrated to their members that this could mean a reduction in the level of support payment for a 5,000 acre farm of nearly 20% if that business continues to use contractors rather than in-house employees.

Saffery Champness say those businesses using contractors will need to think seriously about restructuring their farming methods. Perhaps employing staff and utilising a machinery ring might be one solution. Also those thinking of splitting their holdings to avoid being capped need to think carefully as the regulations when published will no doubt contain provisions to deal with any artificial restructuring, as has been previously seen with earlier legislation.

""Given the October publication date, larger farm businesses only have a narrow window of opportunity to consider if any restructuring is both appropriate and possible and make changes. This may suit a number of landowners who have been considering restructuring, perhaps for succession and Inheritance Tax reasons. However, the legal and professional cost of doing so needs to be measured against the loss of entitlement payments. Decisions need to be made very quickly if a restructure is to be implemented within the timescale" Mike Harrison concludes.