Support for research and development is one of the Government’s key pledges in a post-Brexit and pandemic world and it is likely to boost R&D tax benefits and offer more support.
The UK spent the equivalent of 1.7 per cent of its gross domestic product on R&D in 2018 (latest available Government figures). That compared to 2.8 per cent in the United States of America, 3.1 per cent in Germany and a whopping 4.9 per cent in Israel. The Government has set a target of a UK spend of 2.4 per cent of total GDP by 2027. It will want all sectors to contribute to that increase and with more focus on environmental management as well as more efficient food production then agriculture will be a key area for support.
UK Government spent £365 million, or 3 per cent, of its total R&D spend on agriculture in 2019. That including funding of organisations such as Biotechnology and Biological Sciences Research Council and innovation funding.
Farming, fishing and forestry businesses spent £140m themselves on R&D, around 1 per cent of total output.
As well as direct support for large scale and often academic-driven R&D projects, the Government provides two principal tax reliefs for relevant R&D work. One is the Research and Development Expenditure Credit, which pays back 13 per cent of qualifying costs.
The second, available for small- and medium-sized enterprises (so covering almost all UK farming operations) is a tax relief which delivers an additional 130 per cent tax deduction for qualifying costs on top of the 100 per cent normal deduction for business expenses. If the enterprise is loss-making, then a tax credit worth 14.5 per cent can be claimed.
The Government has acknowledged the value and importance of the reliefs and recently consulted how they could work more effectively and be easier to claim.
There is no exact definition as to what qualifies for tax relief under the scheme.
Department for Business Energy and Industrial Strategy guidelines say an R&D project is one where a project seeks to achieve an ‘advance’ in science and technology.
It also says R&D helps resolve ‘scientific or technological uncertainty.’ Certain qualifying indirect activities associated with a project can also attract the reliefs.
Darren Wilmot, managing director of Easy R&D, a company that helps businesses obtain reliefs, says: “Those magic letters R and D conjure images of people in white lab coats pushing for the latest discoveries in scientific endeavour, but most sectors and businesses have access to innovation.
“The R&D tax credits scheme is heavily under-utilised across most sectors and industries largely due to the ambiguity over what qualifies.”
He adds farming activities which could qualify for R&D tax credits include:
Development of new fertilisers, pest control and weed control chemicals
Techniques to protect from and adapt to atmospheric conditions, such as silage wrap or chicken coops
Engineering to test and install new machinery and components
Adapting existing machinery for production techniques, such as process automation
Soil management and smart irrigation techniques to maximise yield
New processes to reduce or reuse waste, such as investing in biofuels
Creating new feed supplements to improve livestock production
Using sensors, drones and satellite technology
Vertical farming or hydroponics
Recent figures are difficult to come by, but in 2017 the farming, fishing and forestry sectors claimed just £10m in R&D tax credits or 1 per cent of the total, according to HMRC.
The average farming claim was £41,000 compared to £85,000 for the general average.
Claims can only be made by limited companies or PLCs, so that might account for the under-representation of farming businesses, many of which are sole traders or partnerships.
The claim for relief for R&D spend can be made up to two years after the end of the accounting period the project relates to and details of the project should be included in the tax return form.
Claims can be made for as long as a project is up and running which might be until an advance has been identified or the project is stopped.
Capital expenditure cannot be claimed, but the cost of employees and subcontractors working on the project can be along with any materials used.