As the climate changes, so do the conditions within which the agricultural sector must work – the very nature of the sector depends on the natural world and its resources. As well as the usual business life of striving for production efficiency and reducing waste, agricultural businesses face additional challenges in strategy and planning for growth.
Yet agricultural and farming businesses are essential to our very survival. We need to feed an extra two billion people by 2050, and to feed that population, crop production needs to double, but our land is struggling to cope. The agriculture sector needs to innovate to both produce more while reducing its impact on global warming.
Innovation costs money, though. And it takes time and resources, and close attention must be paid to sustainability. Agriculture is a constantly-evolving industry, with leaders striving to improve products and increase efficiency, and so they’re likely engaging in research and development (R&D) efforts without realising it.
Agriculture is full of new developments such as vertical farming – where crops are grown indoors in trays that are then stacked in racks vertically – as well as smart irrigation to save precious water, and even the use of drones to provide aerial images to farmers to enable them to identify weeds and disease. It’s these ideas for pushing towards a better future that are creating new ways of production in the sector.
For companies operating in the UK, that innovation means they have access to the R&D tax credits scheme from the UK government.
What is R&D tax credits and who qualifies for it?
As part of its services to help business growth in the UK, HMRC provides tax relief to those undergoing innovation and development as part of their business. This relief is known as the R&D tax credits scheme, and it’s accessible to all businesses registered in the UK.
HMRC has 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.
However, there is no single definition for what qualifies as innovation or what falls under applicable R&D activities under the R&D tax credits scheme, which makes it tricky for SME business owners to understand how to access this tax relief.
What activity can qualify for R&D tax credits in the agriculture sector?
If you are facing a challenge with operations or productivity and investigating how best to solve it, chances are you are innovating and could be eligible for R&D tax credits.
Activities within the agricultural sector that could qualify for R&D tax credits include:
- Development of new fertilisers, pest control and weed control chemicals
- Techniques to protect from and adapt to atmospheric conditions, such as silage wrap or chicken coops
- Engineering to test and install new machinery and components
- Adapting existing machinery for production techniques such as process automation
- Soil management and smart irrigation techniques to maximise yield
- New processes to reduce or reuse waste, such as investing in biofuels
- Creating new feed supplements to improve livestock production
- Using sensors, drones and satellite technology
- Vertical farming or hydroponics
Why don’t more businesses claim this tax relief?
Those magic letters R and D conjure images of people in white lab coats pushing for the latest discoveries in scientific endeavour, but most sectors and businesses have access to innovation. The R&D tax credits scheme is heavily under-utilised across most sectors and industries largely due to the ambiguity over what qualifies.
It’s also a complicated application process, which can put off many smaller business leaders from trying their luck. It takes time and research to identify exactly which projects can be classed as R&D for tax relief purposes, and figuring out which costs within those projects are eligible. Any misunderstanding or application issue could result in wasted effort, and no tax credit.
But also many just don’t know the R&D tax credits scheme exists. Unless a business is on the cutting edge of its field, it may not consider its general development to be innovation. Accountants may not make them aware of the scheme, either; its discovery often relies on accidental findings or through research into new funding streams for the business. This is an issue the HMRC recognises, and it plans to do more to publicise the schemes.
Recent statistics from HMRC show – that agricultural companies are among the lowest in the country for making use of the R&D tax credits scheme: just 330 claims were made across the Agriculture, Forestry and Fishing sector, amounting to £5 million or just 0.1 percent of all claims across the scheme.
Where can you go from here?
Often business owners and leaders are being pulled in many varied directions, and thinking about the HMRC is the last thing they have the capacity to deal with. What qualifies for tax relief under this scheme is not always straightforward, which is why working with an independent partner can help to maximise your chances of a successful R&D tax credit claim.
Easy R&D works in partnership with 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. We support SMEs by processing R&D tax credits claims, but don’t work on RDEC claims.
With a single-minded focus on R&D tax relief and a diverse team of technical experts, Easy R&D works hard for clients so they can in turn put more back into their business. This helps clients to focus on what’s most important: growing their business.
Get in touch with our team for a free consultation and find out how you can claim R&D tax relief for your agricultural business.
Read what our clients have to say about us