Agricultural sector R&D tax relief
There is an increasing awareness and social consciousness of our impact on the earth which is becoming part of mainstream discussion. This is driving a greater need in agriculture to treat the land well and maximise what we get from our production process. However, in 2016/17 only 205 R&D tax credit claims were made in respect of agriculture. When you consider the average value of a claim was over £48,000, more and more companies in this sector should be aware of the potential of the scheme.
At the heart of R&D for tax purposes, development needs to satisfy two core tests:
- An advance in science or technology
- Scientific or technological uncertainty
As per the Department for Business, Innovation & Skills (BIS) guidelines “R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.”
A typical claim is likely to include:
- Process improvements
- Increased production and scalability
- Technology and software
- Improving standards
The art of agriculture has been handed down through the ages and it is now beginning to embrace fully the opportunities of technology and how it can improve the sector for all involved.
What qualifies for Agriculture R&D?
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. We’ve included more detail on each of these and how it’s included in your claim below.
The majority of most R&D tax relief claims are in respect of staff costs. This includes people directly involved with the activity and others who are indirectly involved. An example of direct costs would be a process specialist – they tend to be defined, technical roles who are the doers of the project. A common misconception is they have to be scientists and academics, this is incorrect. If they are a competent professional whose expertise is part of the R&D effort, then they should be included.
Indirect staff are people who are also involved in supporting the R&D project such as management, procurement, purchasing etc where they help enable the R&D to happen and also are part of the management of the process. These costs are usually overlooked and can be a big impact on the claim
Where you may not have the expertise in house, you may rely on a third party to help with part of the R&D process. These claims are qualifying expenses for the R&D tax relief scheme
Like subcontractors, you may not have permanent staff but want to have temporary staff for a particular role who act in the same way as employees – i.e. under your care custody and control. These costs form part of the claim.
Any items that are used only for R&D and have no use once the project is completed so consumed by the project is also qualifying expenditure.
When you know how much R&D you are doing, you can then attribute a proportion of your heat, light, power & water to the R&D tax relief claim.
How long will my claim take?
The claim process from initial engagement, submission and through to revenue takes on average four to six weeks. But this can be done in a matter of days if the information is ready. What is needed is to initially assess the viability from a financial point of view to make sure it’s worth making a claim, is a review of your management accounts and tax computations.
What steps does the process take?
If there is a good chance of making a claim, we then arrange the technical interview which will last approximately 2.5 hours. This is when our specialists drive out what is qualifying R&D. We never ask the question ‘Tell me about your R&D’? Why? The subject of R&D tax is much wider than academic definitions so we have a detailed conversation to understand your business and the projects you are undertaking.
What is in the report that goes to HMRC?
The report is then made up of two sections, the technical narrative comes first which is the most important part of the claim. Without it, or with a poor technical narrative, a claim is likely to be questioned by HMRC. The second is the financial report which breaks down the qualifying costs highlighted above.
The reports then go through a Quality Assurance process to check that the claim is robust and maximised.
Finally, these are both submitted to HMRC for review.
How long does it take to get a R&D tax relief claim paid by HMRC?
Payment of any credit or refund on previous paid tax is usually within 28-42 days although during a peak period, this may take longer for HMRC. Both of these result in cash back to the business.
If the R&D tax relief is taken as a reduction to your tax bill, this should be submitted no later than 9 months from your year-end date and will reduce your tax bill accordingly.
Can I still claim if we’re not paying Corporation Tax or we are making a loss?
Regardless of if you are profit or loss making, a Limited company operating as a going concern can make a claim.
Which scheme, SME or RDEC?
If you have less than 500 employees and an annual turnover less than €100m or a balance sheet less than €86m, you will make a claim under the SME scheme.
Can I make a R&D claim if I have lots of employees?
If you have more than 500 employees, you will make an RDEC claim.
Cleaning processes in milking cattle
Our client wanted to find a way to limit the spread of infection in the milking process and at the same time speed up the end to end process.
From amending products in the market, they continued to test small changes in the mechanisms until they found a way that gave them what they wanted. This process took just over 18 months and the costs associated were picked up and a successful R&D claim made.
Our client processed tonnes of seeds every year. They wanted to improve the quality of the output by reducing the impact on the ingredients of kernel debris. They worked on cleaning the kernels more effectively on the production line.
They set up a test belt where they kept trying different speeds, different suppliers, cleaning equipment – all the variables that they needed to operate the line. Through this ongoing process they continue to refine their product to create efficiency in the process and increased quality output. For three consecutive years, this client has made a claim and continues to benefit from the R&D tax relief scheme.
To find out what we can do for you:
Large or small – there’s a scheme for your company
If you are a Limited company, whether you are profit or loss making, as long as you are operating as a going concern you can make a claim.
You are classed as a small or medium sized enterprise (SME): for the purposes of R&D tax incentives if you employ less than 500 employees and have either an annual turnover under €100 million or a balance sheet under €86 million.
You are classed as a large company for the purposes of R&D tax incentives if you employ more than 500 staff or you have a turnover of more than €100 million and more than €86 million in gross assets.
Do you think you could be eligible?
- Do you design and make new products?
- Do you seek to improve processes, services, materials or devices?
- Do you make prototypes or perform testing?
- Do you develop software or IT solutions?
- Have you invested in failed projects or developed products that are never launched?
- Do you employ any staff with a technical or scientific background?
And even if you’ve made a claim already
We maximise claims through an expert led, detailed assessment of your activities. There is usually a very good chance we will improve them.
On average, we have increased existing claims by 200%, because we know how to find the full potential of your claim.
What does it mean for you?
R&D for Tax purposes does not necessarily mean blue-sky research which is a common misconception that can prevent companies from receiving the benefits from HMRC that they are entitled to.
RDEC allows the benefit of R&D to be accounted for within the Profit and Loss (P&L) account, above profit before tax, rather than only through the tax account. So, under the RDEC scheme, large companies who are loss making are now able to benefit from their development efforts for the first time, by way of an immediate net of tax cash credit, which is tax exempt.
The RDEC also enhances the company’s earnings before interest and taxes (EBIT), therefore ends up being more lucrative for larger companies.
The scheme is now a straightforward subsidy against the level of R&D spend that your company incurs.
Why it feels different when you work with GovGrant
Our one and only goal is to get you the maximum benefit you deserve for innovating in the UK. When you meet our specialist, it will feel like you’re talking to a colleague rather than your advisor.
We don’t start with your balance sheet. We start by walking the floors and understanding the things you do and the things you make.
There is no conflict of interest. As this is all we do our advice will never conflict with other tax or audit advice you receive.
You are paying for our expertise (not to support a large corporate infrastructure). Experience tells us that when other firms prepare a claim that they leave some of the value off the table. Even the biggest names.
On average, we see an uplift of 200% over what companies have claimed themselves or using another adviser.
We are not the Big 4 ,and we are proud of it. We are the challenger and the better pair of hands. Innovation is about pushing the boundaries and embracing uncertainty to gain advancement.
Over 300,000 R&D tax claims have been made*
£26.9 billion in R&D tax relief claimed*
The average claim under the SME scheme so far in 2017-18 is £53,713*
The average claim under the RDEC scheme so far in 2017-18 is £600,977*
has successfully processed over 6,800 claims
We have delivered over £200m of claim benefit for our clients
The best way to predict the future is to invent it.