Old prices between your farm companies decide which one looks profitable

Oct 27

6 min read

Updated: Oct 28

Somewhere in most family farming groups there is a price list nobody has looked at for years. It covers contracting work, machinery hire, staff time, rent on land and sheds, grain storage and haulage. These are the prices one family company charges another. They make no difference to what the group earns in total. They decide, quietly, which company the profit lands in. And so they decide which part of the business looks worth backing.

In my experience the effect is rarely small. A contracting arm still charging the farm a 2018 rate can show a loss, while the farm looks better run than it really is. Investment goes to the wrong place. Family members argue from the wrong numbers. The tax position may not be what everyone assumes. A two-day review of the charges usually puts it right.

The family farm is rarely one business any more

Farms have spread well beyond farming, and groups of companies have followed. Defra's Farm Accounts in England for 2024/25 show that 72% of farm businesses had a diversified activity, up about 10 percentage points since 2015/16. On those farms the diversified enterprise earned an average of £31,100. Letting out buildings was the most common activity, at half of all farms. Solar generation stood at 27%.

Each of those enterprises leans on the farm. The holiday let uses the farm's staff. The contractor's tractors sit in the farm's sheds. The property company owns the yard the farming company works from. Every one of those links needs a price, even if the price is zero. And someone ought to be able to say why it is what it is.

The world outside has repriced; the family has not

Outside the family, prices are revisited every year. The National Association of Agricultural Contractors' 2026 survey, published in May, put the average rise in contracting charges at 4.84%. Members predicted rises anywhere from 0% to 15%. The 2025 survey had already added 5.7%. The 2026 rates assume red diesel at 70p a litre, and NAAC advises a surcharge when fuel costs more than that.

Land tells the same story. Defra's farm rents statistics for 2024/25, published in February 2026, put the average Farm Business Tenancy rent in England at £230 a hectare, up 4% in cash terms. Informal agreements, with no written tenancy, averaged £253 a hectare. That was the highest nominal figure in a decade. Many arrangements for land within a family are informal. Many have never been set against either figure.

Two years of contractor increases at those rates add roughly 11% to a price. An internal rate untouched since 2019 or 2020 is probably well behind what an outside customer would pay today.

Each company's profit should reflect the work it does, not a price list written years ago.

How £28,000 goes missing on paper

The figures below are illustrative round numbers, not survey data. A farming company and a contracting company belong to the same family. The contractor drills, sprays and combines 400 hectares for the farm each year. It charges a combined rate of £150 a hectare, set in 2019. Its outside customers now pay £200 a hectare for the same work.

Internal charge: 400 ha × £150 = £60,000 a year.
Market value of the same work: 400 ha × £200 = £80,000 a year.
Profit shown in the farm that was earned by the contractor: £20,000 a year.
Add a grain store owned by the property company and used by the farm free of charge, which might let for £8,000 a year: £28,000 of profit in the wrong company.

On paper the contractor looks marginal and the farm looks strong. Now imagine the family deciding whether to replace the combine, or which child takes on which business. They would be working from figures that are £28,000 a year out. Nobody would have lied. The numbers would simply have drifted.

The tax rules moved in 2026, and they still bite

This is not tax advice, and any change should go past your accountant first. But three sets of rules are worth knowing about. Each has moved recently.

Transfer pricing. The UK rules in Part 4 of the Taxation (International and Other Provisions) Act 2010 can require transactions between connected businesses to be priced at arm's length. Most family groups fall under the exemption for small and medium-sized enterprises. That means fewer than 250 staff, and turnover under €50m or assets under €43m, tested across the whole group. HMRC consulted in 2025 on removing the exemption for medium-sized businesses, and decided to keep it. It can still direct a medium-sized group to apply the rules. The Finance Act 2026 received Royal Assent on 18 March 2026. It added an exemption for transactions between UK-resident companies taxed at the same rate, for periods beginning on or after 1 January 2026. Transactions with businesses in certain overseas territories stay in scope, whatever the group's size.

Corporation tax. Since April 2023 the 19% small profits rate has applied to profits up to £50,000, and the 25% main rate above £250,000, with marginal relief in between. Those limits are shared equally between associated companies. A group of three companies therefore has a lower limit of about £16,667 each. Where the profit sits can change the tax bill.

Inheritance tax. From 6 April 2026, 100% agricultural and business property relief applies to the first £2.5m of qualifying property. It is transferable between spouses and civil partners, with 50% relief above that. That is an effective inheritance tax rate of 20% on the excess. Business property relief is not available to a business that is wholly or mainly holding investments, and letting land and buildings can count as investment. So how a group charges rent, and which company holds which assets and profits, now feeds straight into succession planning. Check the current guidance and take advice from a qualified adviser before you change anything.

Three questions to put to every charge

Put every regular charge between companies in one table. Then run each through three questions:

Market: what would an outside customer pay, or an outside supplier charge, for the same thing this year? Use NAAC rates, Defra rent figures, local quotes or your own outside invoices.
Cost: does the price at least cover what it costs the providing company, including labour, fuel, depreciation and finance?
Record: is the basis written down, dated and signed off, with a date for the next review?

Most charges will fall into one of four groups: at a current market rate, at cost, at an old rate, or not charged at all. The last two are where the picture goes wrong. For most charges, a current market rate or a cost-plus figure, reviewed once a year, is enough. Fair does not have to mean complicated.

Where to begin

List every recurring charge between companies, with the amount, how it was set and the date it was last changed.
Price the five largest against this year's market: NAAC contracting rates, Defra rent figures or two local quotes.
Rework last year's profit for each company at those prices, and see whether any decision would have changed.
Take the revised prices and the reasoning to your accountant before applying them, particularly for rent and for anything touching inheritance tax planning.
Set one review date each year, after harvest or year end, and keep a single written schedule of charges.

None of this is dramatic. But the next family conversation about investment or succession will be easier for it. Everyone will be looking at the same honest numbers.

Sources

Figures are taken from the sources listed and were correct at the time of writing. Where rules are described, check the latest official guidance and take qualified advice before acting.