In the first instalment of our trilogy of 'Briefing Notes on the current draft Common Agricultural Policy Reform' we have looked at the possible legal implications of the introduction of the "Golden Ticket" for claimants of the successor to the Single Payment Scheme, the Basic Payment. In this issue, our focus is on the inclusion of an "Active Farmer" test and the implied legal tasks that will be thrown up by its introduction.

While the Active Farmer test has been well publicised and written about, as a reminder the proposed draft of the Common Agricultural Policy reform that was released last autumn requires a claimant of the Basic Payment to be actively farming; in contrast to the current requirement that a Single Payment Scheme claimant "exercises an agricultural activity". The draft reform sets out a two part test to determine whether a claimant is actively farming which will apply to claimants who claim more than 5,000 Euros a year.

The requirements of the Active Farmer test are:

  • That a claimant's claim for direct payments must be equal to or greater than 5% of their total receipts from non-agricultural activity in the most recent fiscal year; and
  • That claimants must carry out a minimum level of activity on their farmland (the definition of "a minimum level of activity" to be determined by each member state).

The first head of this test is of some concern and the key element is that it looks at the total "receipts" (and not simply profits or income) from any non-agricultural activity i.e. any Single Payment Scheme claimant who intends to claim the new payment and receives payments from activity other than farming would have to examine their accounts and business structure very carefully to ensure that they would be able to claim the Basic Payment if introduced in this way.

At this stage there are ongoing discussions over the definition of the 'Active Farmer', as linking the Active Farmer test to the claimant's receipts is widely held to be unworkable. Therefore it would be premature for claimants to put any measures in place now to meet criteria for a test that may change significantly before the Common Agricultural Policy reform comes into effect.

However it is clear that whatever form the Active Farmer test will take, the crux of the matter will be in ensuring that the legal entity that claims direct payments under the Common Agricultural Policy is solely, or at least predominantly, occupied with farming. Therefore it will be important for claimants to review the legal structure of their businesses so that they can be clear what steps they would have to take to effectively ring fence the agricultural activity within a separate legal entity to avoid being caught out when the Active Farmer criteria are brought in. Whether this be by transferring the farming business and a legal interest in the farm to a separate legal body (e.g. to a company, trust or LLP); or by making changes within the existing legal structure (e.g. ring fencing a 'non-farming' partner's interest within a partnership so that their non-agricultural activities and receipts are kept legally separate as well as administratively separate).

Any such review would have to be carried out in the broader context of tax and succession planning to avoid inadvertently making your overall situation worse off in an attempt to claim the Basic Payment. In the Rural Business and Landed Estates Team we have the breadth of experience to advise on such matters in the round and would be more than happy to carry out a preliminary review of your existing setup for the purpose of the Common Agricultural Policy; tax and succession planning; and general business efficacy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.