"Supporting innovation in farming"
From experimenting with new feedstuffs and nutrients, to improving crop harvesting and processing, farm equipment enhancements, and pushing the boundaries of animal husbandry techniques, Farmers are constantly spending significant sums of time and money looking to innovate and improve how they farm. And yet all too often, farmers often consider their innovation as ‘business as usual’ rather than worthy of government support. SME’s in ‘Agriculture, Forestry, Fishing’ were responsible for just 1% of all claims processed by HMRC between 2018-19.
However, it is precisely this sort of coal-face innovation that the UK Government is keen to support through its SME Research & Development (R&D) tax relief scheme. Whilst the name of this Tax Relief conjures up images of laboratories, scientists and lab coats, the reality is far from that. Perhaps it would have been preferable to call it something more inclusive such as the ‘Innovation and Improvement Support Scheme’ which might encourage more businesses to realise that it is applicable to them and the development they do.
What is R&D tax relief?
R&D tax relief is a government state aid incentive which rewards companies (e.g. companies only, sadly not partnerships or sole traders) for spending money on innovation and research within the UK in scientific and technical areas, from manufacturing to software. The support works as a tax relief, reducing a company’s tax bill by up to 33% of qualifying R&D expenditure, or by a repayment in cash, again linked to qualifying R&D spend. It can be retrospectively claimed over the two previous accounting periods. Some of the costs that claims can cover include:
· Staff salaries, NI, pensions, and expenses
· Software downloads and subscriptions, apportioned for subsequent use
· Subcontracting costs
· Utilities such as water and power
· Materials and consumables
· Prototype development
What qualifies as R&D?
The definition of what activity can qualify for R&D tax relief is deliberately wide, much wider than most presume. It can of course support totally new innovation (drone use, vertical farming, and smart irrigation spring to mind), but also applies to incremental advancements in processes or products. So looking to improve your crop harvesting equipment to reduce damage or waste might qualify, as might experimenting with different fertilisers and weed control techniques to improve yield. You do not have to be successful. In fact, failure only proves that what you were trying was uncertain, one of the key requirements of the scheme.
The improvement can be for internal purposes (a bespoke crop storage system, a more energy efficient building) or external (higher quality beef, a new crop variety). All too often we find that companies are conducting qualifying R&D without realising it meets the definitions of the relief. Too often, the R&D activity is simply viewed as ‘Business as usual’. And for many farmers, that will be the case – the innovation and striving to improve is constant, but that still makes it qualifying activity.
R&D projects do not need to be revolutionary, but it is necessary for the company to demonstrate some level of technical uncertainty in the work undertaken to process a claim. If you’ve been involved in projects which are not straightforward and require some iterative work and testing; and the work is carried out by staff who have either training or experience in the area being advanced, then this could be classified as R&D.
The benefits of R&D Tax Relief
The R&D tax relief scheme was introduced by the government in 2000 to encourage and reward UK businesses for investing in innovation. 0ver £20bn has been claimed since then, and the Government has consistently increased the amount it has allocated to support UK R&D. It has been estimated that for every £1 spent on R&D Tax Relief by the Government, the UK economy generated £2.60 in additional activity.
For a profitable small company, the relief can be up to 25% of the qualifying expenditure, so not to be sniffed at. For a loss-making SME it is even higher, at 33%. For example, a profit-making SME who spends £200,000 on qualifying R&D activities, the relief would be worth about £50,000, which is the size of the average UK claim.
For the company receiving the relief the cashflow benefits, especially in the current climate, are immediately obvious, but the real rewards come as companies start to factor in the R&D Relief into improvement or innovation decisions. This allows them to in effect de-risk any decision to invest, making more marginal projects more likely to be actioned, creating a virtuous circle and a culture of innovation. This extra cash can be invested as you wish across your company, such as staff, technology, machinery, and training.
Where to get advice ?
Aside from the misleading “R&D” in the name, the second half doesn’t help either. By delivering this support through HMRC and calling it “tax relief”, there is all too often an assumption that this is not actually a technological issue but a financial one, and best left in the hands of your accountant. But this is often far from the best way of really understanding and quantifying the innovation that is occurring. Accountants are great at what they specialise in (the numbers and compliance), and many would be the first to agree that they are not always expert when it comes to promoting and spotting qualifying R&D activity so they work with third party providers who have the necessary expertise.
Specialist R&D tax consultancies such as Easy R&D typically lead with technically minded consultants, often former manufacturers, engineers, IT consultants, and other technical disciplines, to uncover the true R&D occurring. Once properly identified and defined, the properly incurred costs can more accurately be allocated, ensuring a maximised claim. We work hand in hand with your accountants, so everyone is included in the loop.
How Easy R&D will work with you
R&D tax credits don’t always reach everyone they are intended to reach, but this can be solved through better outreach and promotion. All too often companies either do not know about it, or more likely, have heard of it but have not had it explained to them that it could be relevant to them. If you’ve got this far in the article you will know that it is not the exclusive realm of Bunsen burner boffins, but it is designed to support any innovative business in any sector seeking to tackle scientific or technological uncertainty.
As a source of funding, R&D tax reliefs can be in your company’s bank much quicker than borrowing from the banks. The average length, from start to finish, for a R&D tax claim is 4-6 weeks working
with specialist advisors, and then a further 4-6 weeks with HMRC for processing and payment. This means you could have cash in your bank within two months.
The claims process, if done in conjunction with Easy R&D, typically starts with a short no-obligation call to establish the likelihood of there being any qualifying activity. Thereafter, once engagement letters are signed, it takes no more than about 4-5 hours of committed company time, not a bad time investment when the average claim is c.£50k. There will not be many equally profitable hours in the year. We do not charge anything up-front, we are purely success-fee focused, so we only get paid when you do, so there is no cashflow impact.
Recent agricultural sector case studies
We recently helped a potato farmer in the Midlands with his claim. He has had a variety of different projects ongoing that qualify for R&D tax relief. As you may know, as of April 2020 the EU banned the use of a chemical called CIPC, which has been used to prevent potatoes chitting whilst in storage above 3 degrees Centigrade, which is required for the chip and crisp market. The business has been extensively trialling four different potential alternatives, each tested over a full growing season. To date none of the tested alternatives have produced as good a result as CIPC, and further testing is ongoing.
In addition to the above R&D, the farm has also looked to improve soil-destoning through a redesign of their de-stoning machinery to be more versatile and efficient over a variety of soils. There’s even a third R&D project that this client is working on, but we can’t say anything about that just yet!
The case study emphasises that whether it is machinery, storage, yield, whatever, innovation and improvement can occur throughout the farmers business.
Other recent agricultural claims have involved supporting a major UK nursery with their development of in-house pesticide solutions and varieties, and a farm to develop new husbandry techniques and feed to bring their rare deer population back from possible extinction.
Those case studies only scratch the surface, the possibilities are almost endless. If you are attempting to tackle a technical problem and the outcome is uncertain, you may qualify for R&D Tax credits, please get in touch, it’s likely to be the most profitable call you can make all year.
Alistair Aird is Head of Partnerships at Easy R&D. he can be reached on [email protected] 07436 149689
or [email protected] 0203 286 1691
You can also find more information at www.easyrnd.co.uk
From experimenting with new feedstuffs and nutrients, to improving crop harvesting and processing, farm equipment enhancements, and pushing the boundaries of animal husbandry techniques, Farmers are constantly spending significant sums of time and money looking to innovate and improve how they farm. And yet all too often, farmers often consider their innovation as ‘business as usual’ rather than worthy of government support. SME’s in ‘Agriculture, Forestry, Fishing’ were responsible for just 1% of all claims processed by HMRC between 2018-19.
However, it is precisely this sort of coal-face innovation that the UK Government is keen to support through its SME Research & Development (R&D) tax relief scheme. Whilst the name of this Tax Relief conjures up images of laboratories, scientists and lab coats, the reality is far from that. Perhaps it would have been preferable to call it something more inclusive such as the ‘Innovation and Improvement Support Scheme’ which might encourage more businesses to realise that it is applicable to them and the development they do.
What is R&D tax relief?
R&D tax relief is a government state aid incentive which rewards companies (e.g. companies only, sadly not partnerships or sole traders) for spending money on innovation and research within the UK in scientific and technical areas, from manufacturing to software. The support works as a tax relief, reducing a company’s tax bill by up to 33% of qualifying R&D expenditure, or by a repayment in cash, again linked to qualifying R&D spend. It can be retrospectively claimed over the two previous accounting periods. Some of the costs that claims can cover include:
· Staff salaries, NI, pensions, and expenses
· Software downloads and subscriptions, apportioned for subsequent use
· Subcontracting costs
· Utilities such as water and power
· Materials and consumables
· Prototype development
What qualifies as R&D?
The definition of what activity can qualify for R&D tax relief is deliberately wide, much wider than most presume. It can of course support totally new innovation (drone use, vertical farming, and smart irrigation spring to mind), but also applies to incremental advancements in processes or products. So looking to improve your crop harvesting equipment to reduce damage or waste might qualify, as might experimenting with different fertilisers and weed control techniques to improve yield. You do not have to be successful. In fact, failure only proves that what you were trying was uncertain, one of the key requirements of the scheme.
The improvement can be for internal purposes (a bespoke crop storage system, a more energy efficient building) or external (higher quality beef, a new crop variety). All too often we find that companies are conducting qualifying R&D without realising it meets the definitions of the relief. Too often, the R&D activity is simply viewed as ‘Business as usual’. And for many farmers, that will be the case – the innovation and striving to improve is constant, but that still makes it qualifying activity.
R&D projects do not need to be revolutionary, but it is necessary for the company to demonstrate some level of technical uncertainty in the work undertaken to process a claim. If you’ve been involved in projects which are not straightforward and require some iterative work and testing; and the work is carried out by staff who have either training or experience in the area being advanced, then this could be classified as R&D.
The benefits of R&D Tax Relief
The R&D tax relief scheme was introduced by the government in 2000 to encourage and reward UK businesses for investing in innovation. 0ver £20bn has been claimed since then, and the Government has consistently increased the amount it has allocated to support UK R&D. It has been estimated that for every £1 spent on R&D Tax Relief by the Government, the UK economy generated £2.60 in additional activity.
For a profitable small company, the relief can be up to 25% of the qualifying expenditure, so not to be sniffed at. For a loss-making SME it is even higher, at 33%. For example, a profit-making SME who spends £200,000 on qualifying R&D activities, the relief would be worth about £50,000, which is the size of the average UK claim.
For the company receiving the relief the cashflow benefits, especially in the current climate, are immediately obvious, but the real rewards come as companies start to factor in the R&D Relief into improvement or innovation decisions. This allows them to in effect de-risk any decision to invest, making more marginal projects more likely to be actioned, creating a virtuous circle and a culture of innovation. This extra cash can be invested as you wish across your company, such as staff, technology, machinery, and training.
Where to get advice ?
Aside from the misleading “R&D” in the name, the second half doesn’t help either. By delivering this support through HMRC and calling it “tax relief”, there is all too often an assumption that this is not actually a technological issue but a financial one, and best left in the hands of your accountant. But this is often far from the best way of really understanding and quantifying the innovation that is occurring. Accountants are great at what they specialise in (the numbers and compliance), and many would be the first to agree that they are not always expert when it comes to promoting and spotting qualifying R&D activity so they work with third party providers who have the necessary expertise.
Specialist R&D tax consultancies such as Easy R&D typically lead with technically minded consultants, often former manufacturers, engineers, IT consultants, and other technical disciplines, to uncover the true R&D occurring. Once properly identified and defined, the properly incurred costs can more accurately be allocated, ensuring a maximised claim. We work hand in hand with your accountants, so everyone is included in the loop.
How Easy R&D will work with you
R&D tax credits don’t always reach everyone they are intended to reach, but this can be solved through better outreach and promotion. All too often companies either do not know about it, or more likely, have heard of it but have not had it explained to them that it could be relevant to them. If you’ve got this far in the article you will know that it is not the exclusive realm of Bunsen burner boffins, but it is designed to support any innovative business in any sector seeking to tackle scientific or technological uncertainty.
As a source of funding, R&D tax reliefs can be in your company’s bank much quicker than borrowing from the banks. The average length, from start to finish, for a R&D tax claim is 4-6 weeks working
with specialist advisors, and then a further 4-6 weeks with HMRC for processing and payment. This means you could have cash in your bank within two months.
The claims process, if done in conjunction with Easy R&D, typically starts with a short no-obligation call to establish the likelihood of there being any qualifying activity. Thereafter, once engagement letters are signed, it takes no more than about 4-5 hours of committed company time, not a bad time investment when the average claim is c.£50k. There will not be many equally profitable hours in the year. We do not charge anything up-front, we are purely success-fee focused, so we only get paid when you do, so there is no cashflow impact.
Recent agricultural sector case studies
We recently helped a potato farmer in the Midlands with his claim. He has had a variety of different projects ongoing that qualify for R&D tax relief. As you may know, as of April 2020 the EU banned the use of a chemical called CIPC, which has been used to prevent potatoes chitting whilst in storage above 3 degrees Centigrade, which is required for the chip and crisp market. The business has been extensively trialling four different potential alternatives, each tested over a full growing season. To date none of the tested alternatives have produced as good a result as CIPC, and further testing is ongoing.
In addition to the above R&D, the farm has also looked to improve soil-destoning through a redesign of their de-stoning machinery to be more versatile and efficient over a variety of soils. There’s even a third R&D project that this client is working on, but we can’t say anything about that just yet!
The case study emphasises that whether it is machinery, storage, yield, whatever, innovation and improvement can occur throughout the farmers business.
Other recent agricultural claims have involved supporting a major UK nursery with their development of in-house pesticide solutions and varieties, and a farm to develop new husbandry techniques and feed to bring their rare deer population back from possible extinction.
Those case studies only scratch the surface, the possibilities are almost endless. If you are attempting to tackle a technical problem and the outcome is uncertain, you may qualify for R&D Tax credits, please get in touch, it’s likely to be the most profitable call you can make all year.
Alistair Aird is Head of Partnerships at Easy R&D. he can be reached on [email protected] 07436 149689
or [email protected] 0203 286 1691
You can also find more information at www.easyrnd.co.uk
