Get inventive and take control of tax
The agricultural sector is taking undeniable initiative when it comes to innovation. But many farming and agri-businesses are missing out on a big opportunity to claim tax relief.
R&D is not all white lab coats and PhDs; farmers often carry out activities that are claimable under the R&D Tax Credit Scheme – a retrospective exercise which offers up to 33% of R&D costs as a tax credit.
Financial consultancy Leyton is working with agri-tech enablers, Agri-EPI, to make more UK farmers aware of the scheme and its potential to provide important cashflow, while aiding the improvement of operational efficiencies.
“The scheme can be applicable to work that is happening on farms day to day – but there is huge value underclaimed within agriculture because farmers don’t classify what they are doing as R&D and don’t fully understand their eligibility,” says George Stuffins, Business Development Manager at Leyton.
Broadly speaking, R&D occurs when farmers make improvements based on three key questions: How do they increase the quality of produce? How do they increase yield? And how do they become more sustainable?
Examples range from poultry farmers experimenting with feeding times and lighting concentrations to improve feed conversion or growth rates, to arable farms engineering weed control equipment to reduce reliance on chemicals and improve soil biology. Rewardable R&D is within the realms of every farm business and can be very lucrative, he says.
“Failed projects can qualify too, not everything goes right first time, and in HMRC’s eyes such work can still add significant value to knowledge in the sector.”
So how do farm businesses qualify for R&D tax credits?
Matilda Hayward, senior R&D technical consultant at Leyton, says that conversations with prospective applicants begin on farm with the aforementioned three key questions.
“It drives the project and outlines the business’ main goals, then looks at what R&D is already occurring on the farm and what other R&D strategies could be explored to capitalise on the R&D tax credit scheme.”
- It must seek a scientific or technological advancement,
- It must be meeting a scientific or technological challenge to get the results or determine unfeasibility,
- It must show a systematic approach and be your own activity.
Eligibility is not exclusive to large scale businesses – it is entirely based on a business’ project meeting the key criteria – nor is there a maximum number of project claims.
So what can farm businesses claim?
As a retrospective scheme, applicants claim back money spent on innovative projects over the past two years at the end of a financial year.
The bulk of an R&D claim covers PAYE salaries but there is a rate for contracted staff like seasonal workers and consultants. A portion of utility costs are also claimable – albeit quite nominal, as are software licences.
However, high value claims come from projects using a lot of consumables like feed, medicines and artificial insemination products and services.
“The claim could also include a proportion of costs in relation to mortality within the R&D trial,” says Dr Hayward.
Businesses can’t claim capital costs under the scheme – but there are still opportunities under the Capital Allowance Scheme and through grants, says Mr Stuffins.
How the tax benefit is received depends on tax position as well as the amount the business is claiming back. But a misconception is that businesses in a loss-making position can’t claim.
“Businesses in this position can actually claim for a higher percentage of qualifying expenditure as cash,” he explains.
Looking forward, if a business decides to move ahead, then they need to treat it like an R&D project, says Dr Hayward.
She recommends keeping all the project details and data in one place, including trial results and analysis, when the trials took place, who was involved and the time spent on each activity.
“HMRC now looks for better audit trails so it’s about making sure it’s documented in the right way to make the most of tax credits,” she says. “And it also benefits the business because it can better justify claimed costs.”
Farmers often have a bank of information that can be used, like health monitoring, soil analysis, and data from audits and surveys.
“A consultant can help a business collate the retrospective data for work they didn’t even consider as an R&D project, as well as the best way to collect and collate data going forwards,” she explains.
“Farmers can claim directly. But involving a consultant takes the pressure off the farmer and gives them the security that the claim is compliant and includes all possible business improvements for maximum return.”