How can R&D tax reliefs help the UK agricultural sector?
If your client has a company based around agriculture, fishing or forestry they may be missing out on an average of around £45,000 in R&D Tax Credits; a lot of cash in anyone’s pocket
What are R&D Tax Credits?
If a business carries out any activities around research and development then it may qualify for R&D Tax Credits to reduce its Corporation Tax bill or increase its taxable losses. Loss making companies can take advantage too, with the ability to ‘cash-in’ or ‘surrender’ their losses with HMRC.
What sectors are eligible and what can be claimed for?
This isn’t just about laboratories and pharmaceuticals - R&D Tax Credits can be applied to pretty much any company in any sector where innovative projects have taken place. All a company needs to do is demonstrate to HMRC that the work it has carried out is truly innovative and aims to solve a specific scientific or technological problem.
Costs that can be claimed for under R&D Tax Credits are very broad, with everything covered from money spent on salaries and tools to materials and testing. Independent research and prototype costs could also be eligible for R&D relief, however Capital expenditure will not qualify.
For SMEs, the rate of R&D tax relief can be as high as 230%, while RDEC (the research and development expenditure credit) for larger companies is worth 12% of eligible R&D expenditure.
Looking for specific numbers? Try out our Tax Cloud calculator for accountants for accurate figures fast.
Where does the agricultural sector fit into this?
Companies conducting their business in the agricultural sector are sadly some of the most likely to be missing out on a serious amount of R&D tax relief which could be invested into future projects. Recent figures show that the whole sector only claims around £5m, representing only 0.4% of the total amount claimed. By comparison, the Information and Communication sector had an average claim of £65,199 (27.73% total claims submitted) whilst manufacturing companies made an average claim of £48,823 (26% total claims submitted). Perhaps unsurprisingly, Scientific and Technical companies have an average claim of £70,010 (19.41% total claims submitted).
But it’s not all bad news…
According to Farming news website Farming UK, an upward trend in R&D Tax Credit claims from within the agricultural sector is starting to take place, with an increase of nearly 30% in the number of claims since 2015. So, whilst it’s all moving in the right direction, there are still many agricultural businesses that are not currently benefiting from the R&D Tax Credits they are entitled to.
Why aren’t companies claiming R&D Tax Credits?
In broad terms, we’ve come across three main reasons why companies in the agriculture, fishing and forestry sectors are not claiming their R&D tax credits:
They don’t realise the scheme exists
This is a large problem across a lot of sectors, particularly with SMEs. HMRC have recently started to pick up on this and there are plans to publicise the scheme more.
There’s an assumption that it only applies to science and technology companies
Not true; R&D Tax Credits are open to all industries. It’s simply a case of understanding where a company’s innovations meet with the R&D Tax Credit criteria.
The application process is long and complicated
It’s true that the application process for R&D Tax Credits isn’t the easiest in the world. Not only do companies need to identify their R&D activities, but they must also prove to HMRC why they believe they qualify. There is a lot of documentary evidence needed and a technical narrative to write too. Even many accountants won’t take the work on as they know that it’s a time-consuming process that needs to be completed to a highly professional standard.
Taking on the services of R&D tax experts such as ourselves is the quickest, most hassle-free way for clients to maximise their R&D claim. We don’t take over your client’s accounts or deal in any other tax-related issues; we are only interested in working with you and your client to maximise their R&D Tax Credit application. We are specifically all about R&D.
What types of things count as R&D in the agricultural sector?
Agritech is a great example of the kind of work that would entitle companies in this sector to R&D Tax Credits. Agritech involves using the latest technology to boost the efficiency of production, increase yield and ultimately drive profits within agriculture, fishing and horticulture in particular. It focusses on developing technology, rather than using more land, to meet the growing needs of the world’s economy.
Companies may be carrying out innovative projects that would qualify for R&D Tax Credits in things like:
- Drone use
- Sensor technology
- Vertical farming
- Artificial Intelligence
- Smart irrigation
- Underwater remotely operated vehicles (ROVs)
- Soil management
- Satellite technology
The take away message from all of this is that the agricultural sector in the UK is huge and diverse with plenty of scope for innovation. This in turn provides all sorts of opportunities for companies to claim the R&D Tax Credits they are entitled to, which can be further reinvested. After all, the world’s population is increasing and consumers are increasingly wanting to know that the food they eat is safe, good quality and sustainably sourced. The key thing you can do to help as an accountant is to be aware of what projects your client has undertaken (or plans to undertake) so you can flag up any chances for them to claim such important tax relief.
Have a question or need some clarification?
Tax Cloud UK, part of Myriad Associates, is made up of a team of specialists who deal solely with R&D tax claims all day every day. This means there’s very little we don’t know, and we’d be happy to assist with any queries you may have. Our tax relief calculator for accountants is also available to help you work out exactly what your clients may be owed quickly and easily.
Call us today on 0207 118 6045 or use our contact form.