For those farmers affected by the floods

Flood affected farmers in this area will welcome the news that the government has announced they can apply for grants of up to £35,000 to help them recover from the devastating effects of last winter’s weather which affected many farmers on the Somerset Levels.

The money comes from the “Farm Recovery Fund” which was set up by DEFRA after Prince Charles and a succession of politicians, including David Cameron, visited Somerset to see the grim reality of what was happening for themselves.

DEFRA opened the fund on 28th February and initially have been taking bids for up to £5000 per farm, but from 28th April, farmers who have been particularly badly affected can apply for additional funding up to a total of £35,000 in total. This includes any money they have already been awarded under the initial bid process.

DEFRA secretary Owen Patterson re-visited the Levels on 15th April to see how farmers are recovering which is when he announced the second phase of the grant application to help farmers meet the costs “putting flooded farmland back in to production”.

James Winslade, who is the beef farmer whose cattle we saw so dramatically evacuated as the flood waters rapidly rose, engulfing his farm and the nearby village of Moorland, said, “It’s good that the government has acknowledged the scale of the problem. We have insurance but it mostly covers damage caused by fire and not floods. I will definitely apply for this additional grant money. Unless I apply for this grant I will not cope”.

What is clear is that although the weather has improved and superficially the grass looks as though it is growing, the land which was flooded to a significant depth for several months will not be productive for some time. This will not only impact on the availability of grazing for cattle which should be outside now, but it will impact on the amount of fodder which will be able to be conserved for next winter.

Thus farmers such as James Winslade are facing extra feed bills now and well in to the future plus the additional costs of bringing the damaged pasture back in to production. This will clearly have a very significant impact on the finances of such farmers and that is not to mention the impact the flooding will have had on their own homes.

Therefore the new grant money will be an important boost to help the worst affected farmers get back on their feet but it will be, by no means, a panacea for all their troubles.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Rural Payments Agency's online system

Last week saw a worrying glitch in the Rural Payment Agency’s (RPA’s) online system for claiming Single Payments, the application deadline for which is approaching on 15th May.

I for one was unable to log on to the system over the weekend of 12th and 13th of April and it is understood the problem persisted for some, well on in to the week. On contacting the RPA on Monday 14th April I was told that the problem was not in fact to do with the RPA’s own online system, which I hasten to add is generally excellent, but it concerned a problem being experienced by the “Government Gateway”.

At the time of writing it is not clear whether the problem has been conclusively resolved but what this does highlight is the potential fragility of relying entirely on online systems. This is of particular concern for the RPA who are intending to extend their reliance such systems when the new Basic Payment Scheme replaces the current Single Payment Scheme (SPS) in 2015.

The problems recently experienced were annoying but not catastrophic, but if they had occurred very much closer to the application deadline, the financial consequences of not getting the SPS application submitted on time could have been far more serious.

I am not suggesting we revert to the old paper forms but as our reliance on computers increases so too does our vulnerability to system failures or perhaps more worryingly online fraud of one form or another and in this context many farmers are probably quite exposed. This is because, for older farmers in particular, although many realise embracing computers is now a necessary evil , whether that be to deal with VAT returns or SPS applications, they are not familiar with the online “antics” of some fraudsters which are likely to be more familiar to younger or more frequent users.

Therefore, the government and RPA in particular are urged ensure that the government’s policy of “digital by default” does not leave elderly “non digital” farmers out in the cold and ensures the systems are robust so that all users are able to access the online systems at all times. After all the whole point of digital by default is to increase the efficiency and cost effectiveness of the delivery of schemes such as the SPS and if the systems are unreliable this will lead to frustration and potentially significant financial losses.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Tax reliefs for farmers

Accountants are always advising farmers to manage their affairs carefully so as to be able to take full advantage of the potentially generous reliefs which may be available to them under the Inheritance Tax (IHT) regime.

However, according to Catherine Desmond of accountants Saffery Champness, the National Audit Office (NAO) is launching an investigation in to the misuse of Agricultural Property Relief (APR) and Business Property Relief (BPR), both of which are very important reliefs available to farmers which can reduce or potentially illuminate the need to pay IHT on death. But with an impending investigation by the NAO it seems inevitable that claims for such reliefs will be brought under ever increasing scrutiny.

Accordingly farmers are advised to review their farming business regularly to ensure any changes in farming structure, ownership or occupation do not impact on their potential tax liability.

For example recent changes in planning regulations may encourage some farmers to argue buildings are no longer in agricultural use but the flip side of that coin will be that the Revenue may look to claim such buildings have a value on which reliefs may not be available.

Similarly we will all have seen Solar Parks and other renewable energy projects popping up all over the place and it may be that these developments will change the IHT status of the land and possibly the wider farming business depending upon the scale of the project. Further, another popular device used by landowners, who want to be seen to be farming rather than letting land for IHT purposes, is a contract farming agreement whereby the landowner employs a third party to carry out the farming operations on their behalf. In simple terms arrangement involves the landowner/farmer paying for all inputs over and above the contractor’s charges and then the landowner/farmer benefits from the profits, or losses generated once the crop or other produce has been sold.

This exposes the landowner to the true risk of running a farm but in many cases, although the written agreement may be satisfactory, the reality on the ground may be very different with the contractor effectively “farming” the land while the landowner receives a payment which is more akin to a rent than profit. Such an arrangement may fall foul of scrutiny by the Revenue which could be very costly if this resulted in the value of the land being taxed at 40% rather than receiving 100% relief from tax under either APR or BPR rules.

So the message is that farmers who are growing older should sit down with the family and their trusted professional advisors to ensure they take advantage of any tax reliefs that may be available or are at the very least are appraised of the potential IHT liability if they were to die in a relatively short period of time.

This all seems quite sensible but very often families do not want to discuss the inevitable for one reason or another or professional fees are perceived to be too high and as a result such discussions may not take place until it is too late which in the worst case scenario may jeopardise the future of a family farm.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Banks keen to lend to farmers

Banks are still keen to lend to farmers although the process of getting loans approved can still be quite tortuous as anyone who has recently tried to arrange a loan will be well aware.

However from my recent experience either valuing farms for banks or in helping farmers make loan applications for the Agricultural Mortgage Corporation (AMC), it is clear that competition between all the High Street banks is fierce and we often see “bidding wars” as each bank looks to undercut the other’s cost of borrowing.

The reason banks are keen to lend to farmers is because they generally have a very strong capital base which has been bolstered in recent years by the rise in farmland values. For example in this area we have seen the average value of land rise from around £3000 per acre in 2006 to around £7500 per acre today which is in stark contrast to the residential property market. However revenue returns on farms have not always matched the rise in capital values and this can be the stumbling block, with most banks now more concerned with the serviceability of borrowing than the loan to value ratio.

But in general this is good news for farmers as is the fact that some lending institutions such as the AMC have recently secured additional funding from the European Investment Bank (EIB) which means that for certain loans they can offer discounts on their standard margins of 0.8% which is a significant figure in these days of historically low interest rates.

Such discounts are unfortunately not available for the purchase of land or the restructuring of borrowing but they are available for investment in buildings and other equipment. Therefore if anyone is thinking of carrying out such work they should not only contact their existing bank manager but also consider contacting their local AMC agent to see if they can help.
  As AMC agents and valuers, my firm Carter Jonas, like many others is experienced in helping farmers and landowners through the often complicated process of convincing the bank’s credit team that the applicant is a worthy of taking up the proposed loan and in my experience it is the “early bird” that often catches the worm. Therefore if you think you may have a project that would attract the EIB funding farmers are advised to contact their local AMC agent or call me for free initial advice.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

The last year of the Single Payment Scheme

This year is the last year in which farmers will receive EU support via the Single Payment Scheme and the deadline for completing this year’s application is beginning to loom on the horizon. This process should be reasonably straightforward provided there have been no major changes in the area of land being farmed but the impact of the reforms to the support system which will come in to force next year, need to be considered now.

This is because the new scheme, which will be known as the Basic Payment Scheme (BPS), includes new rules relating to so called “greening measures” which will need to be complied with in order that the farmer receives the payments in full. To the uninitiated the rules may seem reasonably straightforward, but in practice they are complicated and small changes in cropping patterns can have a major effect on whether or not the greening measures come in to force.

In simple terms the greening measures involve two main elements. First there is a requirement to introduce various levels of crop diversification if you farm over 10 hectares of arable land and second one has to introduce “ecological focus areas” (EFAs) amounting to 5% of your arable land if one farms over 15 hectares of arable land.

However, it is not as simple as that in that there are also a raft of exemptions which relate to the area of temporary or permanent grassland and how this area relates to either the total area of the farm or the arable area of the farm. These exemptions significantly complicate the application of the new scheme, particularly on relatively small mixed farms, many of which exist here in the West Country.

As a result farmers need to prepare themselves this year so that they know what crops need to be planted and in what proportions this autumn so as to be able to comply with the new rules.

As an example, last week I analysed one client’s cropping pattern and discovered that if he retained one particular field in grass next year rather than planting it to a crop, he could avoid both the crop diversification and EFA rules. If on the other hand he was to plant a crop in the land, my client would have had to comply with both the crop diversification and EFA rules.

What this means is that farmers need to plan carefully now for next year so as to minimise the impact of the new rules on their farming system, otherwise a relatively small change in cropping pattern could have a significant impact on their ability to comply with the new scheme rules next year and hence receive their support payments.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Section 21 notice simplified by the Appeal Court

It's not inevitable that the landlord/tenant relationship will reach a stage where serving a notice to end the tenancy is required - but sometimes it is unavoidable.

A wrong choice of the legislative section under which to serve the notice, and how the termination date was recorded in it, has been exploited by some tenants to swerve round the notice and continue occupation.

However, the Court of Appeal has issued a new decision on Section 21 of the Housing Act 1988 which governs notices (Spencer v Taylor [ 2013] EWCA Civ 1600).

The effect is likely to simplify serving notice to terminate statutory periodic Assured Shorthold Tenancy (AST).

In the case under appeal, the tenant argued that the notice to quit given under Section 21(4) was invalid because it gave the termination date as a Saturday when it should have been a Sunday and that the customary "saving provision" in the notice to ensure its efficacy made it uncertain as it provided two different termination dates.

Lord Justice Lewison, a leading property QC during his time at the bar, gave the leading judgment and dismissed the appeal. Firstly, he held that the two different dates provided by the use of the customary saving provision did not invalidate the notice. However, more interesting was that he also decided the notice served was valid under section 21(1)(b) of the act and so the landlord's expiry date, which was more than two months from the date of service, was all that was required.

Previously, it was considered that a notice under section 21(4) must be used where possession was required after the end of a fixed term tenancy and must give two months' notice to expire at the end of a relevant period.

This is no longer the case. The law now states that a landlord wishing to gain possession of a property let on an AST, which was a fixed term and has now become periodic, simply gives two months' notice in writing in accordance with the terms of the tenancy agreement and with section 21(1)(b). There is no need for concern with regard to working out the "period" of the tenancy.

Whilst the new law is good news, I still recommend that landlords are cautious as the case could be still be subject of appeal to the Supreme Court and there could be confusion surrounding the new case law.

Based on advice we have received from Pain Smith solicitors we suggest continuing to serve notices on behalf of our landlords that comply with section 21 (4)(a), at least for the near future.


Lisa Simon, 
Partner
Head of Residential Lettings
T: 020 7518 3234 
E: lisa.simon@carterjonas.co.uk

Price of milk cut

Three weeks ago Tesco cut its price of milk from £1.39 to £1 for four pints and since then Sainsbury’s and Co-op have followed, matching the price already offered by Asda, Lidl and Aldi. This price is equivalent to 44p per litre.

Then, a fortnight ago Morrisons not only announced it had made a £176m loss in the year to 2 February but also that it was planning to take Lidl and Aldi head on. This new policy is evidenced by their announcement that they will be cutting the price of their two litre “Meadow Park” pack to an equivalent of 42p per litre which it claims will make it the cheapest price on offer.

This was followed last week by and announcement from Sainsbury’s that its sales excluding fuel had dropped by 3.1% in the last three months. This is a substantial fall and what this seems to indicate is that despite the reported strength of the economy, we as consumers are still looking for good value and supermarkets as a whole have to be extremely competitive to maintain their market share.

This is of course good news for consumers because it means supermarkets are having to squeeze their margins to maintain sales but what concerns me for British agriculture is that it will not be long before the supermarkets will look to transfer some of their pain down the supply chain to farmers and other suppliers.

At present this does not appear to be happening in that the price farmers are being paid for their milk is at an all time high although this is partly because the price of milk products on world markets has also been very strong. However, there are signs that the tide may be moving in the other direction as indicated by recent auctions held by New Zealand based dairy co-operative, Fonterra. These auctions are a good indicator of world dairy commodity prices and at their last auction the global dairy price index dropped by 5.2%.

So with global dairy markets beginning to drift and a supermarket price war in progress, dairy farmers should perhaps prepare themselves for lower milk prices in the months to come. Having said that, the best dairy farms are making good money at present and should continue to do so provided they keep a close eye on their costs and ensure that their milk production system is aligned with the requirements of their milk contract.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk