Think back to the last time you were in a supermarket. Consider the choice of cereals in the breakfast aisle, or the number of different yoghurt products you were greeted with over on dairy. As for bread, it filled shelves upon shelves, right?
The UK food and drink manufacturing industry actually comprises more than 30 different sectors, led by bakery, meat processing, drinks, dairies, animal feed and fish processing. Wholesaling and retailing of food and drink are considered different sectors by the UK Government, as is non-residential catering services, so the food and drink sector as an entirety is huge. The total value of the food sector was £109.6 billion in 2018, and it contributes almost £30 billion to the economy each year.
As consumers, we are faced with a seemingly endless range of choices when it comes to food and drink – even the humble bottled water comes in many different forms and flavours. All of this is based on consumer demand, on food and drink businesses researching and innovating and developing new products to put in front of us on those shelves in a bid for more market share.
And for food & drink SMEs operating in the UK, that innovation means they may have access to tax relief from the UK government.
What are R&D tax credits and who qualifies for them?
HMRC’s R&D tax credits scheme is designed to provide tax relief to UK businesses that are undertaking innovation and development as part of their core business. It’s accessible to businesses registered in the UK, but can be especially transformative for small and medium sized businesses.
The money received from HMRC in the form of R&D tax credits can be a great way to reinvest in your business – the resources to purchase new machinery, investigate new technologies or experiment with operational efficiencies.
There are two schemes available for claiming tax relief: the small or medium sized enterprise (SME) scheme, and the research and development expenditure credits (RDEC) scheme. Since its launch, more than 300,000 claims have been made, totalling more than £33.3 billion in tax relief which can then be reinvested into more innovation, and so the cycle continues.
Of course, there is no simple definition for what qualifies as research and development for R&D tax relief, which means many business owners don’t know where to start or assume they don’t qualify.
What activity can qualify for R&D tax credits in the food and drink sector?
The total factor productivity of the UK food chain beyond the farm gate rose by almost 1 percent between 2017 and 2018 (most recent statistics available), outpacing the growth of the wider economy by 0.8 percent. This is a sector that is in constant demand, and not just because of rising populations – businesses are competing on an ever-globalising scale, and consumers demand more choice from its food and drinks companies.
That means food and drink businesses need to become more productive and more innovative with each passing year. And, as you face these challenges, chances are you are innovating and could be eligible for R&D tax credits.
New product development is most likely to qualify for R&D tax credits, as this is where the scientific analysis comes in. It requires production at scale and a lot of experimentation – what happens if you reduce the sugar levels in a ready meal? Does it impact its use-by date? Its taste? The way the ingredients interact with each other?
Dietary trends and ethical concerns are the latest driver of new developments in food and drink: free-from, vegan, no Palm Oil, high protein, all are the result of innovation. Sometimes that innovation is necessary after changes in regulation or Government requirements; the UK “sugar tax” led to a lot of behind the scenes changes in the way many food and drink manufacturers make their products.
But R&D in the food and drink sector doesn’t just involve the end product; research and development could include introducing or adapting processes to improve sustainability aims or meet environmental regulations, such as reducing CO2 emissions or reducing food waste.
It could be equipment or production techniques to increase output; new processing methods to optimise the potential of new equipment; or, varying product inputs to achieve greater consistency. It could involve developing better packaging to extend shelf life, or it could be better back-office administration processes, such as investing in technology to improve order processing.
It’s important to note that market research into consumer tastes and preferences would not qualify as R&D for tax relief purposes. However, using that information to then develop a new product or formula could be considered in a claim for R&D tax credits.
Why don’t more businesses claim this tax relief?
Simply put, many SMEs in the UK aren’t aware of the R&D tax credits scheme, or assume they won’t be eligible for the tax relief. The term “research and development” makes many think of scientific endeavours, but most sectors and businesses are innovating in some way during the business lifecycle.
Those who are aware of the tax relief scheme can be put off by the application process. Any misunderstanding or application issue could result in wasted effort, and no tax credit.
While it’s difficult to ascertain exactly how many food and drinks businesses have claimed through the R&D tax credits scheme – HMRC’s industry sector analysis bundles all manufacturing together (24% of claims) and puts food with accommodation (among the lowest-claiming sectors) – it’s always worth checking to see if your business is eligible for R&D tax relief.
Where can you go from here?
The best way to claim while minimising the pull on your time? Talk to an expert independent partner who knows how to navigate the minefield.
Easy R&D works in partnership with SME business leaders looking to claim R&D tax relief from HMRC. Our expert team of consultants carry out the majority of the claim process, keeping client commitment to a minimum and maximising the claim value that can be received.
Working with Easy R&D for tax relief claims is a simple five-step process:
- We’ll chat about your projects
- We’ll assist you with uploading the necessary information to our secure portal
- We analyse the data on your behalf
- We submit your R&D tax credit claim with HMRC
- HMRC reviews your claim, before a payment is made
Get in touch with our team and find out how you can claim R&D tax relief for your food and drinks business.