Research and Development Tax Credits are available to companies carrying on activities that meet the definition of R&D. Broadly, the activity is seeking an ‘advance in science or technology’.
There are two strands of R&D relief – the ‘SME scheme’ and the ‘RDEC scheme’. The SME scheme is usually more generous, offering a 130% additional deduction for qualifying costs and a payable tax credit for loss making companies. A loss-making SME can effectively claim up to £0.33 for every £1.00 spent on qualifying R&D costs, whereas a profit-making SME can benefit up to £0.25 per £1.00 spent.
Many agricultural businesses are simply unaware of the benefits of R&D relief or may feel as though their access to R&D reliefs is limited. Based on government data[1] for 2018/19 only 620 R&D claims were made by companies within the “Agriculture, Forestry and Fishing” sector. To put this in context, a total of 59,030 claims were made, with most being skewed towards the manufacturing, information technology and scientific services industries.
It is a common misconception that SME relief only applies to those operating in a laboratory setting. However, farmers in the UK are amongst some of the most innovative when it comes to adopting and creating novel technologies to increase yields and sustainability, which in turn could lend itself towards a successful R&D claim.
To give some examples of activities that may qualify for R&D relief in an agricultural setting:
- Development and implementation of novel methods to increase yields, for example, development of disease resistant crops, experimentation with hydroponics, new initiatives to improve soil quality and experimentation with heating, airflow and irrigation solutions.
- Experimentation with livestock antibiotics, feed, rationing and delivery systems.
- Innovative pest control methods (e.g., application of pheromone-based pesticides) and tracking systems.
- Design and development of bespoke agricultural software or machinery or packing systems.
- Development of novel techniques to increase farm sustainability, reduce CO2 emissions or generally reduce the environmental impact of the farm.
For the project to qualify, it is important that the claimant has themselves undertaken R&D or subcontracted this out to another party. If the issue or the key uncertainties of the R&D project can be easily solved by consulting a competent agronomist, livestock breeder or other professional, the project is unlikely to fall within the scope of R&D relief.
If you would like any further information on R&D tax credit relief, specific to the agricultural industry, please do get in touch with Churchgates either by phone (01284 701271) or by email ([email protected]).
[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/921791/R_D_Tax_Credits_Combined_Tables_2020.ods
