30 December, 2010

A blog by Kate Theophilus, a Member of the Coodes Rural Team

The Single Farm Payment Scheme (SPS) was introduced in 2005 to replace (with the exception of milk quotas) existing support schemes.  In an attempt to simplify what is a complex system new European Regulations containing various amendments to the scheme came into effect on 1 January 2009 and 1 January 2010.  Set out below are a few small examples of where changes have been made, it is not intended to be a comprehensive list.

Some basic definitions
The definitions of "a Farmer", "a Holding",  "Eligible Land" and "Agricultural Activity" have been amended/widened to simplify matters. Included under the definition of Agricultural Activity is the process of 'maintaining the land in good agricultural and environmental condition'.

The Ten Month Rule
Previously, to qualify for the SPS, the land had to be 'at the farmer's disposal for at least 10 months of the year.' The 10 month period began on a date chosen by the farmer between the 1st October and the 30th April of the year preceding making a claim. If no date was chosen, then the default date was the 1st February. This process resulted in it being possible for the farmer to have two different start dates for the 10 month period for different parts of the same holding.

The new Regulations abolished the 10 month rule with effect from the 1st April 2008 and replaced it with the requirement that the land had to be 'at the farmer's disposal at an "appropriate date." DEFRA chose the "appropriate date" as the 15th May in each year. Therefore provided a farmer has at his disposal on the 15 May the land in question, he can make the appropriate claim. As an application has to be received by the Rural Payments Agency (RPA) by the 15th May each year, the effect is that a farmer need only have the land at his disposal for one day in order to make a claim.

National Reserve*
Any National Reserve entitlements not used for a period of two years will be forfeited to the National Reserve. Previously it was three years.

The rule requiring entitlements allocated from the National Reserve not to be transferred during the first 5 years and the need that they must be used in each of those 5 years has been abolished. In 2009 National Reserve Entitlements commuted to normal entitlements.

Set-Aside
Set-Aside entitlements have been abolished and converted into ordinary entitlements, they have a lesser value due to the fact that they do not attract a historical element.

The Need to be a Farmer at point of Transfer
The transfer of entitlements previously required the Transferor and the Transferee to be farmers at the date of the transfer. This caused problems for farmers who were retiring bearing in mind the transfer does not take place until 6 weeks after the appropriate RLE1 Form is lodged with the RPA. As a result therefore, since 2009, the RPA now only insist that the Transferee is a farmer at the relevant time. The effect of this is that it has done away with the need for a series of short term agreements involving leasebacks and farming contracts which were previously used to protect the Transferor's status until registration with the RPA was complete.

Percentage sale without land
The previous requirement that the transfer of entitlements without land could only be effective if 80 % of the overall entitlement holding had been activated has also been removed.

Cross Compliance
In addition to satisfying certain criteria to obtain payments, farmers also have to carry out obligations relating to the environment and animal welfare. This is known as 'Cross Compliance.' Concerns arose as a result of the abolition of Set-Aside that cross compliance may not be met. This is an area which is still under review and further details are awaited. That said there are some new categories under the current cross compliance regime, one of which is the need to comply with legislation relating to water abstraction and licences granted under the appropriate legislation.

Modulation
The first €5,000 of any claim remains exempt. Basic Compulsory Modulation remains at 5% but there is an additional Compulsory Modulation of 2% introduced in 2009 rising in steps of 1% per year to 5% in 2012. In addition there will be additional modulation for those receiving payments of more than €300,000.00 who would lose a further 4%. Voluntary Modulation Regulations have  been amended so that for every 1% increase in Compulsory Modulation, Voluntary National Modulation is reduced by 1%.

Minimum extent of land for a claim
The new Regulations require member states to introduce a minimum level for an acceptable claim and as from 2010 within the UK, the minimum area of land for which an acceptable claim can be made is 1 hectare. This is an increase on the previous level.

Finally
Payments under the SPS are a valuable asset to farmers and landowners alike.  Therefore careful consideration should be given as to the ultimate destination of entitlements in the event of letting land or death.  Entitlements do not attach to land but are an asset in their own right and if not dealt with in a tenancy agreement or a will may not end up where the owner of the entitlements intend.  It is always advisable to seek professional advice. 

 

* The National Reserve is in effect a "pot" of entitlements set up under the scheme to support farmers whose business changed during or after entering the scheme, which as a consequence reduced their entitlements. The existence of the Reserve enabled those farmers to apply for entitlements from the "pot" so as to increase the amount of entitlements they had.

It also enabled new entrants to farming who may have land but no entitlements to obtain some, especially if they are unable to buy any on the open market. These are known as National Reserve Entitlements.

 

Kate Theophilus is a Commercial Property Solicitor and Partner in Coodes' St.Austell branch.  Kate specialises in all types of Commercial Property law and is up to date on all issues and regulations in and relating to the commercial property sector.

 



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