Research and Development tax relief – are you missing out?

Published on 31st October 2019

When most people think of Research and Development (R&D), they think of men in white coats. R&D is therefore automatically associated with sectors such as engineering and pharmaceutical. Businesses in the food and drink industry therefore often miss out on generous R&D tax reliefs.

What is R&D?

A project qualifies as R&D if it is making an advance in science and technology and can meet the 4 requirements set out by HMRC:

  1. The project has looked for an advance in science and technology
  2. It has had to overcome uncertainty
  3. It has tried to overcome this uncertainty
  4. The project could not be easily worked out by a professional in the field.

A key point is that the project does not necessarily have to develop a brand new product or process, but it can also improve an existing one.

What tax relief is available?

The tax relief for Small and Medium Enterprises allows a company to claim an additional 130% of qualifying expenditure against their profits chargeable to Corporation Tax. So for every £100 spent on R&D, the company can deduct an additional £130 when calculating it’s Corporation Tax.
In addition, if the company is loss making, it can surrender all or part of their losses for a repayable tax credit of 14.5%. This provides a lower amount of tax relief, but the Corporation Tax refund could be a vital source of additional cashflow.

When can R&D arise in the food and drink industry?

Qualifying R&D in the food and drink industry could arise in a number of ways. The first is out of the desire to create a new and innovative product, potentially because the company spots a gap in the market or its own product lines. Secondly, the company could look to improve some attributes of an existing product, such as making it more luxurious or healthier.
R&D within the food and drink industry can also arise out of regulatory changes, forcing companies to adopt new processes or ingredients. An example of this could be the proposed plastic packaging tax, which may force companies to research and develop alternative more sustainable forms of packaging.

What type of activities could qualify for R&D tax relief?

There are a number of product development activities within the food and drink industry that could qualify, such as:

  • Incorporating new ingredients into food products where it has been previously unknown how to do so
  • Improving the taste, texture or nutritional content of a product, such as low calories or reduced sugar
  • Producing sample batches in a test kitchen
  • Producing free from foods, such as gluten or dairy free
  • Developing new techniques that will generate efficiencies and improvements in the technical process
  • Developing new or enhanced packaging
  • Designing new equipment to aid the food or drink manufacturing process.

This list is certainly not exhaustive, and represents just a limited example of the type of activities that could qualify as R&D.

What steps should businesses take?

If you think that you have incurred R&D expenditure, it is vital that you act as soon as possible. R&D claims are time limited, companies only have 2 years from the end of their accounting period to make a claim. For example, a company with a 31 December year end only has until 31 December 2019 to make a claim for R&D expenditure incurred in the period ended 31 December 2017.

If you think you may have a project that qualifies, contact your local Simpkins Edwards office and speak to one of our experts for advice.