The huge interest in the National Reserve and the lure of free entitlements continues. Only 300 farmers have fully completed their online applications but another 1,000 have started.

However, talking to consultants, at least the same again are gathering the information they need to apply.

This article is not about the basic criteria. Anyone who is really interested in benefiting from the National Reserve has already read and I presume understands them. You will find them on the Irish Farmers Journal website by searching for National Reserve.

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This article is about ten things you really should be looking at when you apply.

1. Gather all the information quickly: Consultants are saying this is taking longer than many anticipated. Getting the bank details, especially where a joint account has to be set up, is the main sticking point. If you are establishing a new herd number, apply as quickly as possible – it can take six to 10 weeks. Getting your name put on an existing herd number (joint herd number) is straightforward and can be turned around in one to two weeks. The Department has said that once a farmer applies for a herd number before the 31 March deadline, they will be allowed to submit an application when they actually receive one after the deadline. It must be done before the 15 May cut-off. I would suggest sending an email to the Department setting out that you have applied to make sure they have a record. Talking to DVOs, the main holdup on herd number paperwork is not having legal papers for transfer of land or lease and not having the signature of the person nominated to look after stock in your absence. You must also have adequate facilities when they inspect the farm.

2. Only put down the hectares you think you will submit: As part of the application process, you are asked how many hectares you will be submitting. The average so far is between 30ha and 40ha. This is just to guide the Department and is not the maximum number of entitlements you will get. The hectares that you submit on you Basic Payment Scheme (BPS) application will be the only measure.

3. Don’t get caught with the wrong naked land: This issue was highlighted last week and directly relates to existing farmers who try to split the land they owned and submitted in 2013 to create naked hectares. These naked hectares cannot be taken to the National Reserve to establish entitlements. It has been clarified this week that this only applies where the land is taken to the national reserve. For example, if a father who owned 100ha transferred 20ha to his son, he must transfer the entitlements as well. He cannot stack his entitlements on existing hectares, and would lose them if he did not transfer them with the land. In the cases where entitlements on owned land are transferred, the only way a new entrant or young farmer can benefit is a top-up, but only if the entitlement value transferred is less than the national average. Young farmers can apply to the National Reserve with additional leased land. If the young farmer has applied on the joint herd number, he must bring in new land, over the area his parents farmed in 2013. These hectares can be used to get entitlements from the National Reserve. For example, if a father farmed 100ha in 2013 and his daughter’s name is put on the joint herd number in 2015, the joint herd number must submit more than 100ha in 2015 (leased or purchased) for the daughter to have land she can submit to the National Reserve.

4. Submit transfer form for joint herd numbers: Any change in the registration details of a herd number, such as where a person is added to, or removed from, an existing herd number, requires the transfer of the entitlement allocation right and corresponding reference value from the original holding to the new holding. This form must be submitted before the 15 May deadline.

5. Don’t miss the deadlines: The two deadline are 31 March for the two priority categories of young farmers and new entrants. The deadline for any additional categories such as force majeure and “old young” farmer will be 15 May. The deadline for the Young Farmers Scheme is 15 May.

6. Watch the tax implications: Farmers often forget about the tax implications. If you put your name on a joint herd number, the transfer of the herd number into joint names will mean that the SFP/BPS entitlements will be owned jointly. Therefore, in the event of joint herd number being deactivated, the entitlements will go back to each of the individuals equally. For example, if you owned €20,000 worth of entitlements and you put them into joint names, you would be deemed to own €10,000 worth of entitlements each (see separate piece on facing page).

7. Make sure you start farming for the right reasons: Carefully think though why you are setting up farming and what your long-term plans are. A 50% clawback has been introduced on the sale of entitlements so this takes the gloss off some people’s short-term plans. Young farmers should talk through all the implications of being put on a joint herd number to qualify for the young farmer top-up. Remember, you must have a meaningful say in the business to get the payment.

8. Don’t pay too much for rented land: All you are doing is eating into your Basic Payment and working for less than the minimum wage. If it was left to me, applicants would have to have a business plan that shows the potential for profit. They should have it done anyway!

9. Don’t spend it before you get it: With online applications, the Department should be able to process the National Reserve far quicker. The aim is to pay successful applicants a 50% advance payment from 16 October and farmers should be contacted before that. The remaining 50% will be paid on 1 December. Young farmer top-ups are targeted to be paid from 1 December 2015.

10. Older’ young farmers keep trying: The news that the Department is creating a separate category for farmers who started farming after the Installation Aid Scheme closed and 1 January 2010 is very positive. The finer details have not yet been worked out, but the deadline for application will be 15 May. Macra, which worked hard to push this through, estimates that over 1,000 farmers could benefit, but it could be more. This new category does not qualify for the higher 60% grant aid for TAMS under Pillar II. ‘Older’ young farmers have still to make a coherent case to the Department of Agriculture to be included in a specific category or even be dealt with on a case-by-case basis under force majeure. The window for action is closing. The final decision will be made in Ireland, not in Europe.

Tax implications of joint herd numbers

Declan McEvoy, head of tax, IFAC Accountants, and Philip O’Connor, Agriculture Support Manager, IFAC Accountants, look at the tax implications of joint herd numbers

Many young farmers are looking to be put on their parents’ herd number to benefit from the young farmer top-up. The joint herd number is a simpler way for the DVO to set up and administer its disease control programme, which is the primary role of all herd numbers.

The Department of Agriculture has confirmed that the transfer of the herd number into joint names, and ticking the change of registration on the transfer of entitlement form, will mean that the BPS entitlements will be owned jointly. Therefore, in the event of a joint herd number being deactivated, the entitlements will go back to each of the individuals equally.

Example: If you owned €20,000 worth of entitlements and you put them into joint names, you would be deemed to own €10,000 worth of entitlements each.

Tax consequences

Creating a joint herd number will trigger unintended tax consequences:

Capital gains tax: You are effectively disposing of half of your entitlements and will be liable to capital gains tax. You will need to examine as to whether any reliefs can apply. If no reliefs apply you will pay tax at 33% on the gain as you are disposing of the entitlements without land.

Capital acquisitions tax: If you transfer entitlements into joint names, you are disposing of half of your entitlements. This means you are giving a gift to whomever you are entering into joint herd numbers with. The effect of this is that the person receiving will have received a gift and may or may not be able to avail of reliefs.

Existing joint herd number applicants

Where the applicant is an existing joint herd number and it is not necessary to amend the ownership structure in order to qualify for the schemes, then satisfying the qualifying conditions would not have any surprise consequences and any yearly income arising would be regarded as farming income of the entity for the purposes of income tax.

The farming scheme’s qualifying conditions draw a distinction between a joint herd number and a partnership. With the exception of the new entrant category, all other joint herd number applications must include a bank statement or letter from the bank to which direct payments are made confirming that the young farmer’s name is on the bank account. In addition, it is necessary to complete a declaration, to be witnessed by a solicitor, that the young farmer exercises “effective and long-term control either solely or jointly over the farming entity for which the Young Farmers Scheme application is being submitted. This control extends to decisions surrounding the management, benefits and financial risks associated with the farming entity for the purposes of the duration of the application for payment under the Young Farmers Scheme”. This structure has many of the hallmarks and characteristics used in determining whether a partnership exists or not.

My concern is that this structure could unwittingly grant unintended legal ownership rights to a share of the underlying assets to the new joint owner and also expose the entity to tax implications.

It would also be advisable to speak with your solicitor to clarify whether the joint herd number entity is a joint tenancy or a tenancy-in-common. A tenancy-in-common grants a succession right to the longest-surviving joint owner.

Proper tax structured advice is needed to ensure that you are aware of the consequences of transferring the herd number from a SFP/BPS.