GAEC STANDS for Good Agricultural and Environmental Conditions and points to the way that some south-east farmers on marginal arable land are likely to farm in the future, says Smiths Gore’s Simon Blandford.

Mr Blandford, talking to farmers at the Gatwick Manor Hotel, said managing land for the environment, either to attract the single farm payment or to qualify for the Entry Level Scheme, made sense and would not be difficult.

“DEFRA is only hoping for a 60% uptake of the ELS, but every farmer should sign up. One-third of the 30 points needed to obtain the £30/ha ELS payment are simply desk-based and the rest are best farming practices.”

However, many Sussex farmers were asking if they would still receive the ELS payment even if they didn’t actually farm the land, said Strutt & Parker’s Matthew Berryman. “All the indications we have received so far suggest that they will.”

Many farmers would certainly make more money by not farming the land and receiving the SFP in return for cross-compliance on the environment or indeed the ELS, he said.

“Wheat yields on the Weald clays in East Sussex average between 2.5t and 2.75t/acre – at £65/t, that is a loss. Yields need to be 3.5t/acre to break even at £65/t. So simply spending £15/acre on maintaining grassland and hedgerows would be more profitable for these farms than cropping the land.”

But farmers choosing this option had to be aware of the tax implications, warned Mr Berryman. “If the Inland Revenue decides that a GAEC farmer is not a real farmer, they will lose Agricultural Property Relief (inheritance tax) and the day-to-day trading benefits of Schedule D tax relief,” he said.

Martyn Crawley, of accountant Chavereys, said: “The accepted view has been that if all land is put into set-aside this is still farming.” But topping land every five years to meet the environmental conditions of the SFP is unlikely to be regarded as an agricultural activity.

“I believe, therefore, that land will continue to be farmed by whatever means when people realise how much is at stake if land loses its ‘farming’ status, and the resultant loss of Inheritance and Capital Gains Tax reliefs and Schedule D status is considered. This is worth far more to many farming businesses than making a small loss through farming the land. They will want to preserve those long-term tax benefits,” he said.

Another taxation issue to consider, warned Mr Crawley, was the inclusion of two subsidy payments in 2005. “The Single Farm Payment is not a sales subsidy so it will be taxed in its own right. Will it be taxed when it is received, applied for or on a pro rata basis during the calendar year?”

He reckoned it was more likely to be taxed on a pro rata basis during the year and charged month by month for 2005. So, if growers were selling a 2004 crop in 2005, then they would potentially be taxed on two years worth of subsidy – once on the IACS payment and again on the SFP, said Mr Crawley.

“Needless to say, we still do not know the answer to this, and I am told by the authorities that we are unlikely to know until early in the New Year.”