Why UK farmers are potentially missing out on an average of £52,000 in R&D tax credit savings

Evidence suggests that more awareness is needed of the range of applications for R&D tax credits in agriculture in the UK. With HMRC data revealing that the UK agriculture sector made up less than 0.5 percent of UK R&D tax credit claims, those operating in the industry are encouraged to consider whether they might be eligible.

For those that did make a claim from the sector, the average value of a claim was nearly £52,000 in 2017-18.

What is R&D tax credit for agriculture?

In the UK companies are able to claim tax relief for their R&D activity. The schemes, for SMEs and larger companies, are both administered by HMRC. Typically SMEs get back up to 33 percent of the amount they’ve spent on qualifying R&D. Large companies could get more than 10 percent of their R&D spending refunded.

The misconception is that it's an innovation tax credit only suited to those in white lab coats and in digital sectors, though it’s applicable to any business that has developed and used innovation in it’s process - it can even be applied to for tax savings on innovation that has failed.

According to HMRC, to get R&D relief, you need to create a new product, service or process, or change an existing product, service or process for the better.

Real world examples of typical claims in the agriculture sector have included:

• Finding a way to limit the spread of infection in the milking process and at the same time speed up the end to end process.
• Setting up a test belts to try different speeds, different suppliers, cleaning equipment – all the variables that they needed to operate the line
• Improve the quality of the output by reducing the impact on the ingredients of kernel debris.
• Working on cleaning the kernels more effectively on the production line

There are five broad categories which can classify Agricultural R&D claims; staff costs, subcontractors, externally provided works (EPWs), consumables and heat, light and power.

Dominic Bartholdi, Head of Business Development at agricultural R&D tax specialists GovGrant, provides expert insight into R&D in the agricultural sector:

Why the agricultural sector is missing out on savings

We find that companies from all sectors have the potential to claim UK R&D tax relief. For tax purposes the definition of R&D is so much broader than you may think.

We know that agricultural businesses of all kinds are now benefiting from refinement through technology. R&D tax claims can come from process improvements, production improvement and scalability and quality control. And we see this happening in all aspects of agriculture, including.

• Growing of crops
• Animal production
• Mixed farming
• Support activities to agriculture and post-harvest crop activities
• Fishing
• Forestry and Logging

Is it known that farmers are not claiming where they could be?

Even when businesses are already claiming R&D tax credits, they might not have fully explored the full potential of that claim. For example, we had a client who hadn’t considered a key project as R&D as they were collecting study data on behalf of a professional body.

In this case, day-to-day work was carried out to monitor the crops under specific trial conditions and collect data, that was time spent on R&D. Similarly with indirect personnel who were working to enable that R&D.

How much innovation is there in the agriculture sector?

We see a huge amount of innovation in the agricultural sector. So much activity that could be considered good farming practice would qualify as R&D. So, for instance, when a grower wants to understand why their crops aren’t growing well, discover novel ways to improve crop yield or ways to save money on the farm.

There are so many examples where we’ve seen specific innovations which were all qualifying expenditure for R&D tax credits.

• In looking at why pollination is low over the past few years, tracking bee populations and activity
• Tracking pests and response to different pest control processes
• Investigating new ways to use waste materials in a novel bioreactor as a means to reduce energy costs
• Different glass and greenhouse lighting conditions
• Airflow impacts within a greenhouse
• How different varieties grow and respond in the same/different growth conditions

What are the triggers that could suggest that a farmer may have R&D that qualifies for tax credit claim?

If there’s a moment where your crops hasn’t grown as well as expected, then any time spent looking into why this may be the case could be qualifying R&D.

Any machinery you’ve tweaked on the farm to improve a particular function or purpose specific to their situation could be R&D.

Anything you’ve tried as a way to save money – whether it worked, or not. Either way, may be qualifying activity.

What advice would GovGrant give to farmers in the agriculture industry who are unsure whether they apply?

Our one and only goal is to get you the maximum benefit you deserve for innovating. Initially we will assess the viability from a financial point of view to make sure it’s worth making a claim, by reviewing your management accounts and tax computations. We don’t want to waste your time so we’ll give you realistic feedback from the start.

If there is a good chance of making a claim, we then arrange a meeting with each relevant department or site. This is when our specialists drive out what is qualifying R&D. We never ask the question ‘Tell me about your R&D’? We have a detailed conversation to understand your whole business and the projects you are undertaking.

When you meet our specialist, it will feel like you’re talking to a colleague rather than your advisor.