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Sheep Annual Premium Scheme Quotas - Explanatory Guide

SECTION FOUR: TRANSFERS AND LEASES

PART 1: GENERAL RULES

Notifying a transfer or lease of quota

28 You may transfer quota permanently by sale or by gift; you may also lease quota temporarily (for 1-3 years). You can transfer or lease quota to another producer or to someone who will become a producer in the scheme year in which the proposed transfer or lease will take place. You must not transfer or lease quota to someone who is not a producer. (Please note that for the purposes of the SAPS, a producer is defined as a person who assumes the risks and/or organises the rearing of at least 10 eligible ewes which he or she either owns, or leases and receives the proceeds of sale of the lambs produced. The minimum number of eligible sheep must be kept continuously, both within and outside the retention period). You must notify the transfer or lease to the Department on the correct form and by the appropriate deadline. There will be a new notification form for each scheme year. The Department will process the notification form and will confirm the outcome of the transaction to you in writing. Completed notifications may be handed into your local area office or sent directly to QMS at the address given at Annex 3.

Quota available for transfer or lease

29 Before you attempt to transfer or lease quota to another producer you should check that sufficient quota is available to you. In particular, if you have failed to meet the usage rules in previous years, it is essential that you check whether you are liable to have any of your quota withdrawn. (See Section Two)

The notification period

30 Notification periods normally open in the September before the SAPS scheme year and close on the last day of the application period for SAPS (normally in early February). The notification period does not include the period following the SAPS application period when late premium claims can be accepted with a penalty reduction. Transfer and lease notifications made after the closing date of the application period for premium claims will not be accepted. You may acquire quota if you have already submitted a premium claim, as long as you notify the transaction to the Department within the notification period (please note however that the rules governing this point are different for suckler cow producers).

Submit your transfer and lease notification as quickly as possible.

Completing the forms

31 Separate notification forms for transfers and leases, together with explanatory leaflets, are available from your local area office during notification periods. Both the person transferring or leasing out the quota and the recipient of the quota must complete their section of the form and sign it, or supply the Department with written authorisation for an agent to act on their behalf attached to each and every form. In the case of transactions involving one or more members of a producer group, each member of the group acquiring or disposing of quota must complete a separate notification form for each transaction. When the form has been completed, it must be sent in its entirety (with any necessary documentary evidence attached) to the Department. Once the notification forms have been processed, letters of confirmation will be sent to both parties to the transaction or their agents.

32 A postcard acknowledgement is available. If you wish confirmation that the Department has received your notification you must fully complete a card and affix a postage stamp. The Department will then date and return this card to you or your agent as proof of receipt.

It is in your interests to correctly complete and stamp a postcard acknowledgement to ensure confirmation of receipt.

Change of business

33 Before taking a decision to change the ownership or structure of your business in a way which would require you either to dispose of quota or hold quota under a different name, you should check whether you are prevented from disposing of quota by the national reserve or supplementary allocation trading restrictions (Part five of this section refers). If you are prevented from disposing of quota under these restrictions but have reduced your share of the flock or have changed the structure of your business, you will not be able to use some or all of your quota and may be in breach of the usage rules. (See paragraphs 11-20)

Transfer and lease of quota which has been transferred in during the same scheme year

34 You may transfer out or lease out, during the same quota trading period, quota which has been transferred to you in that trading period, provided that you are eligible to dispose of quota (see Part Five of this Section and paragraph 27). However, you may not transfer out or lease out quota which you yourself have leased in from another producer.

Transfer in the event of death

35 In the event of the death of a producer, the quota passes into the hands of the person or persons empowered to act as executors. This is an automatic process and no formal transfer of quota is necessary. The executors may then submit premium claims and/or lease or transfer out quota (subject to the normal rules) in their capacity as executors of the deceased producer's estate until the estate is settled. Once the estate is settled, the executors must then formally transfer any remaining quota either to the beneficiary of the deceased producer or to another producer. If the estate is settled outside of normal quota trading periods, a transfer can be accepted in advance (i.e. before the next trading period opens) in respect of the next scheme year. All normal rules apply to such transfers and they should be carried out during the trading period for the scheme year in which the intended recipient of the quota first requires the quota to support a premium claim. If the death occurs within three years of the producer receiving an allocation of quota from the national reserve, the rule which prevents the transfer of national reserve quota will be waived (see paragraphs 57 and 58).

PART 2: MINIMUM NUMBERS

36 There are rules governing the minimum number of quota units you may trade. For any lease transaction, or where you intend to transfer some but not all of your quota, the minimum numbers, which are based on the number of quota units you hold (i.e. quota owned plus quota leased in, minus quota leased out) at the time of the transfer or lease notification, are:

37 If you transfer all your quota over a period of time, the minimum numbers rules will apply to each transfer except the final one.

38 The minimum numbers apply each time you notify the Department of a transfer or lease. If you are disposing of quota, a different minimum number may apply to second and subsequent transfers or leases because the amount of quota you still hold will changes after each transaction. If you submit forms to dispose of quota to more than one producer at the same time, you should indicate on the notification forms that you are doing so and specify in which order you would like the transactions to be processed. Failure to do so might result in a notification being rejected.

PART 3: THE SIPHON

39 The 'siphon' is an automatic withdrawal of quota applying only to transfers of quota, not to leases. For each separate transfer where the quota is transferred without the holding, 15 per cent of the quota transferred will be 'siphoned off' to the national reserve without compensation.

Exemptions from the siphon

40 The siphon will apply except where all of the following conditions are met (but see paragraphs 41 and 42 below):

• you transfer all your quota at the same time (see paragraphs 44 and 45) as all your holding: and
• the recipient or recipients of your holding all receive quota; and
• your quota is transferred exclusively to the recipient or recipients of your holding.

41 The siphon does not apply to transfers between members of the same producer group where all of the following conditions are met:

• you can satisfy the Department that you trade as a producer group:
• the transferor and transferee must remain members of the group for the year in which the transfer becomes effective plus the following three years; and
• the transferor and transferee must remain eligible for premium for the year in which the transfer becomes effective and the following three years.

If these conditions are not met, the minimum penalty will be the withdrawal, from the time the breach occurs, of the amount that would have been 'siphoned off' on the occasion of the transfer.

42 If, as a member of a producer group, you transfer all of your remaining quota and all of your share of the business to others within the same group, you will not have to fulfil the above conditions to qualify for exemption from the application of the siphon to the transfer.

43 The transfer of your holding could include a transfer of ownership, a transfer of tenancy or a transfer of your share in a producer group. The transfer of a short-term let will be regarded as a valid transfer for the purpose of the siphon rules as long as there is an exclusive right of occupation with rent and not an informal arrangement.

Conditions under which the transfer of the holding will be regarded as taking place at the same time as the transfer of the quota

44 The Department will regard the transfer of quota as taking place at the same time as the transfer of the holding if it is satisfied that one of the following conditions applies:

(a) the transfer of the holding takes place during the transfer and lease notification period in which the quota is being transferred; or

(b) the transfer of the holding takes place in the last four weeks of a transfer and lease notification period and the quota is transferred before the end of the next transfer and lease notification period.

The transfer and lease notification periods are described at paragraph 30.

45 Documentary evidence, such as a letter from the seller's solicitor confirming the transaction, will be required to demonstrate that the recipient of the quota has already taken over the holding, or is under an obligation to do so in the relevant time period.

Common land

46. The siphon does not apply if you graze common land only, decide to stop grazing your sheep on that land and transfer all your quota to one or more producers.

Remember to include all the required documentation with your notification form. This saves time.

PART 4: LEASING RULES

Maximum of three consecutive years

47 The minimum period for a lease is one year (i.e. to cover one year's premium payments) and the maximum period for any lease is three years.

48 If you lease out quota, you may do so for up to a maximum of three consecutive years. This may be done through a combination of one, two or three year leases. There must then be a gap of at least two consecutive years following any period of leasing before you lease out again. Normal usage rules will apply in the two or more years when you do not lease out any quota (i.e. you must use at least 70 per cent of your quota to claim premium). Once you stop leasing, either when you have leased out quota in three consecutive years, or when you decide not to lease out after having already leased out quota in one or two consecutive years, you will not be able to lease out for two consecutive years. The following examples demonstrate this:

Example one: If you lease out quota in the 2000 trading period, the 2001 trading period and again in the 2002 trading period, you will not be able to lease out any of your quota in the 2003 and 2004 trading periods. You will be able to recommence leasing out quota in the 2005 trading period.

Example two: If you lease out quota in the 2000 trading period and again in the 2001 trading period but decide not to lease out quota in the 2002 trading period, you will not be able to lease out any of your quota in the 2003 trading period. You will be able to recommence leasing out quota in the 2004 trading period.

Example three: If you lease out quota in the 2000 trading period but decide not to lease out quota in the 2001 trading period, you will not be able to lease out quota in the 2002 trading period. You will be able to recommence leasing out quota in the 2003 trading period.

Remember to check that you are eligible to lease out.

49 If you are leasing in quota, it is in your interests to obtain confirmation that the producer leasing out the quota will meet the requirement outlined in paragraph 48. If the requirement is not met, the lease notification will be rejected and you may find that you have insufficient quota to meet your premium claim.

Leases for more than one year

50 If you wish to lease out the same number of quota units to the same recipient for more than one year you need to submit only one notification form as long as you indicate on the form how many years (two or three) the lease is to cover. If you subsequently decide to extend a one or two year lease you must submit a new notification form for the remaining period to be covered by the lease, but you must still adhere to the rule which limits any period of leasing to a maximum of three consecutive scheme years. If you lease out a different number of quota units to the same recipient in successive years or lease quota to a number of different recepients in any year, you will need to submit a separate notification form for each year's transaction(s) with each recipient.

Exemptions from the leasing rules

51 If you are a producer taking part in an environmental scheme recognised by the European Commission involving the extensification of livestock production, you may lease out quota for the duration of your scheme agreement, as long as you signed and returned your application to the Department before 22 July 1994. You will also be exempt from the usage rules described in paragraphs 11 to 16.

Special Rules applying to producers in Scotland participating in an Environmentally Sensitive Areas Scheme or the Countryside Premium Scheme

52 If you signed and returned your scheme application after 21 July 1994, you will be subject to the normal leasing rules described in paragraph 48

53 If, as a condition of your participation in one of the above Schemes, you make stock reductions as a result of habitat management requirements, other than as part of the stock disposal option, the normal transfer and leasing rules will continue to apply (see paragraphs 48 - 50).

54 Participants in the stock disposal option will have an equivalent number of quota units frozen throughout their participation. For example, if your participation requires you to dispose of 100 sheep, 100 units of your quota will be frozen and, throughout your participation in the Scheme, you will not be permitted to claim Sheep Annual Premium on those units or transfer or lease them to another producer. This frozen quota will be exempt from the usage rules while you are a participant in the Scheme.

55 The quota units frozen will be reinstated when your participation in the Scheme is ended.

Will VAT apply to the proceeds of the transfer or lease of quota?

56 VAT at the standard rate, currently 17.5 per cent, will be applicable to the proceeds of a transfer or lease of quota.

PART 5: RESTRICTIONS ON TRANSFERS AND LEASES FOLLOWING RECEIPT OF SPECIAL QUOTA ALLOCATIONS

National reserve quota

57 If you receive an allocation of quota from the national reserve, all your quota is then deemed to be national reserve quota. You may not therefore transfer out or lease out any of your quota in the year in which your allocation becomes effective or the following two years. For example, if you received quota from the 2000 national reserve you may not transfer out or lease out any quota in the 2000, 2001, or 2002 scheme years.

58 There is only one exception to the rule outlined in paragraph 57. If a producer dies within three years of receiving an allocation from the national reserve and his or her executor wishes to transfer the quota, the normal restriction will be waived (see paragraph 35).

Supplementary allocations of quota

59 If you have received or receive in future a supplementary allocation of quota following your participation in 1991 either in the pilot Sheep Extensification Scheme or an Environmentally Sensitive Areas Scheme (see paragraphs 8 to 10), you may not transfer out or lease out any of your quota for the three years following this allocation. The scheme year in which your allocation is first effective is counted as the first year of the three.

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