Research and development is often associated with pharmaceuticals, with many assuming it takes men in white coats to earn R&D tax credits for their efforts. In reality, however, organisations in a wide range of sectors can benefit from this government initiative, enjoying a reduction on their corporation tax for making advances in science and technology.
The food industry is one such sector. Companies looking to make their products healthier, free from allergens or longer lasting can legitimately claim R&D tax relief, provided their work meets the criteria set out by HMRC. Let’s take a look at research and development for food manufacturers.
Change in the food industry
Change occurs in the food industry at a high rate. Government initiatives, EU regulations and consumer demand all lead to companies looking to improve shelf life, reduce sugar content or make gluten or dairy-free alternatives to their best sellers. All such factors spark research and development.
As such, many projects are eligible for R&D tax credits. Examples include:
Experimenting with new equipment and processes to make production faster or cleaner
Experimenting with ways to manage environmental factors such as temperature
Revising recipes to exclude allergens or meet stricter guidelines
For example, let’s assume Business A makes chocolate bars, which are subject to a new regulation around sugar content. In order to meet the standards, a new recipe must be developed that preserves the chocolate’s flavour while reducing the sugar content and keeping costs reasonable, so that consumers don’t suddenly see the price of their favourite treat soar.
Alternative ingredients must be purchased, tried and tested. The regulation could also require a slightly different processing method or new piece of equipment to be adopted. All these things cost money and necessitate employee’s or sub-contractor’s time to be spent on the project. Such expenditure would qualify for R&D tax credits.
Making a claim
Claiming for R&D tax relief is a similar process regardless of the industry sector in which your business operates. Claims are made as part of the corporation tax return, and the amount of relief you can receive differs depending on the size of the business. Small businesses (those with fewer than 500 employees and an annual turnover of less than €100 million) will claim under the SME scheme; all others must claim under the RDEC scheme.
During the research and development project, keep track of the costs involved with such elements as utilities, employee costs and consumables that are directly related to the activity. These can then be totalled, with the calculation for R&D tax being made according to whether your work falls under the SME or RDEC scheme. Supporting documents are required too, which explain the nature of the challenge that was overcome and why the project qualifies for the tax credits.
Of course, tax-related issues are never straightforward, so acquiring the help of a tax specialist is highly recommended. Speak to your advisor today if you think your work is eligible for a claim.