R&D Tax Credits for Food and Drink Businesses

drink factory

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:

  1. We’ll chat about your projects
  2. We’ll assist you with uploading the necessary information to our secure portal
  3. We analyse the data on your behalf
  4. We submit your R&D tax credit claim with HMRC
  5. 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.

R&D Tax Relief for the Agriculture Sector

tractors on a field against sunset

The agriculture and farming sector is increasingly exploiting new science and technology. Farming operations are becoming more sophisticated and farmers are investing in various innovative projects for their buildings, equipment and new technology to meet the demands of their industry.

However in 2019 HMRC reported that businesses in the Agriculture, Forestry and Fishing industry were under-claiming R&D tax credits. This means that there are still a large number which are missing out on claiming tax relief on R&D projects which they may be entitled to receive.

What is R&D tax relief?

In 2000 the UK government introduced a scheme to encourage scientific and technological innovation. The R&D tax credits scheme allow companies that carry out qualifying R&D related to their trade to claim an extra corporation tax deduction for certain qualifying expenditure. Furthermore the UK government have pledged to run R&D tax credits until 2032.

According to HMRC, a project to develop a new feed or to grow crops that have substantially increased vitamin content, produce better or more reliable yields, or are more tolerant to weather conditions and resistant to blight, would all be considered as qualifying R&D. These are just a few examples and more can be found on our agriculture section.

R&D tax relief claim – Whartons Nurseries

At Easy R&D we have processed hundreds of R&D tax relief claims since 2015. One of our agriculture clients who have successfully claimed R&D tax relief is Whartons Nurseries.

Whartons Nurseries are a garden rose powerhouse cultivating 1.5 million plants each year, the largest wholesale grower in the UK. To explain his company’s experience of processing an R&D claim with Easy R&D, Paul Wharton who is Director at Whartons Nurseries, stated:

We had heard of the HMRC R&D tax credit scheme and thought it might apply to us. Through a recommendation by a friend, we started talking to Easy R&D. They quickly helped us shine a light on our business and realise the true extent of the R&D we had been carrying out. But nothing had been claimed back from HMRC. Easy R&D’s input helped us make a large claim which resulted in a substantial tax repayment from HMRC. This money is put back into R&D to help us grow the very best garden roses whilst retaining our leading position in the UK market.

How Easy R&D can help your business

At Easy R&D we are on a mission to support innovative businesses by helping them to claim R&D tax credits which they may be entitled to receive. This generous tax benefit can help a business to unlock resources, and for many, this enables a culture of innovation to be embedded into an organisation.

Our R&D Consultants are knowledgeable, highly experienced and can identify R&D costs which qualify for the scheme. We provide full end-to-end support to process claims, flexing around the needs of the client to minimise their time commitment.

If you’d like to enquire about R&D tax relief on any of your agriculture projects, you can speak to one of our experienced Consultants on 0800 195 7516 or submit an enquiry form for a free consultation.

Are You Eligible for R&D Tax Credits?

Research and development is crucial for businesses and for the UK economy as a whole.  This was the reason that in 2000 the UK government introduced a system of R&D tax credits that can see businesses recoup the money paid out to conduct research and development and even a substantial amount on top of this.  But how does a business know if it qualifies for this payment?  And how much would the claim be for if it does qualify?

R&D tax credit basics

There are two bands for the R&D tax credit payment system that depends on the size and turnover of the business.  These are classed as Small and Medium-sized Enterprises (SME) and as Large Company.

To be classed as an SME, a business must have less than 500 employees and either a balance sheet less than €86 million or an annual turnover of less than €100 million.  Businesses bigger than this or with a higher turnover will be classed as a Large Company for the research tax credit purposes.

The biggest reason that businesses don’t claim for the R&D tax credit that they are able to is because they either don’t know that they can claim for it or that they don’t know if the work that they are doing can qualify.

Improvement in R&D knowledge

Research and development must be in one of two areas to qualify for the credit – as either science or technology.  According to the government, the research must be an ‘improvement in overall knowledge and capability in a technical field’.

Advancing the overall knowledge of capacity that we already have must be something that was not readily deducible – this means that it can’t be simply thought up and needs something kind of work to create the advance.  R&D can have both tangible and intangible benefits such as a new or more efficient product or new knowledge or improvements to an existing system or product.

The research must use science of technology to duplicate the effect of an existing process, material, device, service or even a product in a new or ‘appreciably improved’ way.  This means you may take an existing device and conduct a series of tests to make it substantially better than before and this would qualify as R&D.

Examples of scientific or technological advances might include:

  • A platform where a user uploads a video and image recognition software could then tag the video to make it searchable by content
  • A new type of rubber that has certain technical properties
  • A website that takes the system or sending instant messages and makes it possible for 400 million daily active users to do so instantly
  • A search tool that could sort through terabytes of data across shared company drives around the world

R&D tax credits – Scientific or technological uncertainty

The other area that can qualify for the tax credit is termed as solving a scientific or technological uncertainty.  Such an uncertainty exists when it is unknown whether something is either scientifically possible or technologically feasible.  Therefore, work is required to solve this uncertainty and this can qualify for the tax credit.

The work needs to be carried out by competent, professionals working in the field.  Work that improves, optimises or fine tunes without materially affecting the underlying technology don’t qualify under this section.

Receiving the R&D tax credit

If the work carried out by the company qualifies under one of the criteria, then there are several things that the company can claim for based around the R&D work being done.  The company must be a UK company to receive this and have spent the actual money being claimed in order to claim the tax credit.

Areas that can be claimed for under the scheme include:

  • Wages for staff under PAYE who were working on the R&D
  • External contractors who receive a day rate can be claimed for on the days they worked for the R&D project
  • Materials used for the research
  • Software required for the research

Another factor to the tax credit is that it doesn’t need to be a success in order for the claim to be made.  As long as the work qualifies under the criteria, then even if it isn’t a success, then the tax credit may be claimed for.  By carrying out the research and failing, the business is increasing the existing knowledge of the subject or working towards curing a scientific or technological uncertainty.

How much R&D tax relief can businesses claim?

For SMEs, the amount of tax relief that can be claimed is currently up to 33% of R&D qualifying costs.  This credit is also available if the business makes a loss or doesn’t earn enough to pay taxes on a particular year – either the claim can be surrendered or the credit at a rate of 14.5% of R&D qualifying costs or held against tax payments for the following year.

Making an R&D tax credit claim

The system to make the claim can be a little complicated and for this reason, Easy R&D now offer a service where they can handle it for the business.  This involves investigating to be certain the work will qualify for the credit.  Once it is established that it does, documents can be collected to prove the money spent by the business on the research and then the claim can be submitted.  Under the current system, the business could see the tax relief within six weeks of the date of claim without any further paperwork required.

Easy R&D have helped hundreds of companies to make R&D tax relief claims and many of them involved innovative software. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516