Farming partnership

A partnership is an association of “persons carrying on a business in common with a view of profit” (Partnership Act 1890). The partners contribute to the partnership as they agree, divide profits and losses between them on an agreed basis, and are jointly liable for the debts of the partnership. With unlimited liability, a partnership does not issue public accounts. Within the framework of the 1890 Act, the partners’ responsibilities and rights will be defined by the agreement or the Act itself as a default if the agreement is silent on the matter.

• It is important to have a written partnership agreement defining the business, the partners, their rights and obligations, what assets are included in it and how it might be ended, including whether the partnership is to continue after a partner’s death
• Each partner’s contribution should be recorded with any changes in them shown in the accounts which may be evidence of how the partnership has been conducted
• A farming partnership does not have to include any rights in the land to be farmed but can simply have a licence to farm the land of one or more partners
• Where land is rented, the tenants would be the partners at the time, not the partnership as it might change
• A farming partnership would usually be the claimant or agreement holder for official schemes
• The partnership business with its income and costs has a common set of accounts with overall profit or loss for each period
• Each partner will have a defined share in that profit or loss
• Any profit may be left in the partnership or taken as drawings to be income for a partner
• Partners are jointly and severally liable for the debts of the partnership

• While the partnership is to make its own tax return, each member is self-employed and liable for their own tax return and tax payment assessed on their position with opportunities for averaging
• There are limits on loss reliefs where a partner does less than 10 hours a week
• The agricultural land used by the partnership remains eligible for Agricultural Property Relief (APR) but Business Property Relief (BPR) may be limited. The qualification of a house as a farmhouse for APR would be a matter of the specific facts

VAT – for VAT purposes only, the partners in a partnership are treated as one person. Care must be exercised because if the same partners have another separate trading partnership, for example for a holiday let, this would also be caught by the same VAT registration, because the partners are the same.

More about APR: Agricultural Relief for Inheritance Tax – GOV.UK

More about BPR: Care should be exercised to ensure that your tax affairs remain legal. More information on the legalities of schemes around BPR: Property business loss relief schemes (Spotlight 13) – GOV.UK 

For the Partners: 

• In farming, a partnership is most often used in a family context, involving family members in the business. It is a versatile means to ease succession, with adjustment of partnership shares
• It can be used to involve people with particular skills, resources or experience needed for a business venture, especially as it need not give any rights in the land, offering management responsibility, risk and the hope of reward
• It is more private than a company

For the Landowner: 

• A partnership can ensure continuity in the business farming the land, a phased approach to succession or introducing new skills while remaining fully in business as a farmer

Learn more about setting up a partnership: Set up a business partnership – GOV.UK

This is essentially the same as a partnership, but the partners have limited liability.  The accounts need to be submitted to Companies House so that there is a public record of them which anyone can view (although there is little detail provided in most cases).

A Limited Liability Partnership (2000 Act) limits the partners’ liability to third parties and is registered with Companies House and files accounts in the same way as a limited company. This is possibly more important for activities with larger risks like food processing. 

More about Limited Liability Partnerships: Set up and run a limited liability partnership (LLP) – GOV.UK 

Further help on choosing the right business structure: Get help and support for your business – GOV.UK

More about Agricultural Property Relief: Agricultural Relief for Inheritance Tax – GOV.UK