Making the most of R&D tax credits in the farming industry
Farmers in the UK are missing out on millions of pounds worth of Research & Development (R&D) tax credits every year, with the average cashback claimed by SMEs in the Farming, Forestry and Fishing industries less than half (£41,000) that of other industries (£85,000). Stuart Wilkinson, Office Managing Partner at EY in Cambridge and Head of Tax in the East of England comments on why farming businesses should make the most of innovation incentives.
In February 2020, DEFRA released its report into agricultural regional profiles. It found that income from farming in the East of England decreased by 22% between 2014 and 2018. The biggest contributors to income were poultry meat (£533 million), wheat (£513 million), fresh vegetables (£307 million) and pigs (£255 million), together accounting for 50% of all income in the region.
Predominant farming types in the East of England were cereals (accounting for 50% of farmed area in the region) and general cropping farms (accounting for 34% of farmed area). The average size of farm (118 hectares) in the region is also larger than the English average (86 hectares). It’s therefore not surprising that the economy of the region is supported greatly by the success of industries aligned with agriculture and farming and innovation holds the key to long term sustainability for the industry.
The HMRC’s latest Research and Development Tax report revealed that less than one percent of SMEs in the sector, fewer than 400 companies, regularly claim cash benefits for R&D, with many businesses not appreciating the breadth of project activities that can qualify for the relief. As a result, businesses may have missed out on the opportunity to stimulate growth through additional funding.
One of the biggest misconceptions is that activities being undertaken are ‘just part of the day job’. However, these activities can be considered as qualifying R&D, provided they are seeking improvement beyond typical approaches within the field (excuse the pun) of science or technology. For example:
- Monitoring and improving soil formulation by changing the mix of treatments applied
- Improving crop yield / meat production through experimentation with irrigation or heating solutions
- Overhauling data management systems in poultry farming to enable new monitoring techniques
When considering project activities, we also see businesses who have not included the full extent of qualifying cost categories within their claims. These can include:
- Payments to staff
- Payments to temporary workers
- Expenditure on materials, including feeds, fuel, cattle and many more
- Expenditure on software for R&D
- Payments to qualifying bodies for research performed on your behalf
- Subcontracted expenditure for third parties to perform R&D for you
It’s important that companies consider the full breadth of both qualifying activities and cost categories. The correct support from professional advisers at EY can help with this activity.
UK Government are keen to support innovation, and this can be seen from an increasing budget for Innovation Incentives and R&D Tax credits. Later in 2020, a new round of Agri-tech Catalyst is due to open, with the aim of supporting innovation in agriculture and food production business, including those operating in crop production; food processing and storage; and mitigation of climate change. Qualifying projects can be up to 18 months in duration and attract up to £800k in grant funding.
Many farmers are familiar with land-based funding where payments are made directly from Government bodies, but these don’t always account for production, based on land size, or if there is woodland on the land. In fact, there are several grant funding options available to the UK agricultural sector, including:
- Farm Recovery Fund
- Woodland Creation Grant
- RDPE Growth Programme
There are also funds that continue to encourage collaboration between farming, food processing and manufacturing businesses, with grants such as the Smart Sustainable Plastic Packaging to support the removal of single-use plastic from the food chain.
Furthermore, non-Government funds are available such as the Waste & Resources Action Programme (WRAP) offering funding for the conversion of food waste into energy.
There are many sources of funding and eligibility criteria are not always obvious, so why not get in touch with a member of the team to find out more and consider the options for your business.