There is a large debate concerning the reform of the Common Agricultural Policy of the European Union in which the direct payments represent the most discussed issue. This paper focuses on the problem of inequality of direct payments distribution that exists between large farms and small farms in the Czech Republic. The paper analyses the impact of proposed progressive capping scenario on the viability of large farms and assesses the effectiveness in reaching the reduction of inequality pursued by this measure. With the use of a CGE model, it is shown that there could be expected significant structural changes that will be accompanied by a decline in number of large farms in favour of smaller groups of farms. This result suggests that large farms in the Czech Republic do not seem to benefit from the economies of scale and they are equally dependent on subsidies as other farms. With respect to the distributional changes, the paper demonstrates that the progressive capping could moderately reduce the inequality in direct payment distribution but it can create another inequality if it comes to the distribution of direct payments per employee.