With innovation key to the food industry, it is somewhat surprising that the sector is yet to capitalise on the UK Government’s appetite for research and development
Research and development (R&D) tax credits are one of the most attractive tax reliefs available at the moment, given that they can often result in significant cash repayments from HMRC. While traditionally associated with the fields of science and technology, R&D tax credits are available to any business that innovates. The food sector has been slow to take advantage of these incentives, with the most recent data from HMRC listing food as the subject of less than 1% of the total claims for R&D tax credits in 2013/14. Surprising given the food manufacturing industry makes up the largest component of the UK manufacturing sector. However, we are also talking about a highly fragmented industry in which relatively low margins present challenges to making investment in development.
In spite of this, the continued emergence of the health-conscious consumer and trends of convenience and sustainability mean that innovation in the food sector has never been so necessary. Innovate UK lists enhanced food quality as a priority for 2016/17 and is running a number of food industry competitions. At the time of writing, active topics include ‘innovative salt reduction and fibre enhancement of artisanal sourdough bread products’, ‘the development of a fibre-enriched beverage to reduce sugar and stimulate satiation’ and ‘using spent brewery grain to create a high fibre food ingredient’. While such initiatives are often the domain of the larger food manufacturing companies and universities, the R&D tax credit system is open to any business liable to corporation tax in the UK and can be applied to smaller-scale projects. Opportunities exist across the supply chain; from farmers and producers developing new techniques in cultivating crops and rearing animals to how food is stored or packaged.
To be granted an R&D tax credit, a business will need to demonstrate improvement to a core process, product or service and an element of uncertainty or risk in the outcome. The most important thing is the ability to demonstrate that the product (or service) is truly innovative, cutting edge and, at a technological level, an advance on what is currently available on the market. There are obvious applications in the food industry: from a head chef adapting a recipe or process to fit new trends and allergy requirements, to a small food producer developing new packaging to enhance the shelf life of their product.
There are R&D reliefs available to both small and medium enterprises (SMEs) and large enterprises. The saving for a profitable SME is up to £46 per £100 of qualifying R&D expenditure and for large companies this is up to £28.80 per £100. In cases where an SME is loss making they may be able to elect to receive a cash credit in exchange for giving up the right to use R&D losses against future profits. This can be worth as much as £33.35 for every £100 of qualifying R&D expenditure for SMEs. Claims need to be made within two years of the company’s year end, meaning a business can potentially claim for all qualifying expenditure incurred as far as 36 months back.
In this continuously evolving food sector, it is clear that opportunities for R&D tax relief are yet to be utilised to their potential. R&D tax credits are a specialist area and it may be worth speaking to an R&D tax advisor who can not only help you identify a claim, but maximise it. Research and development is no longer confined to lab coats and test tubes. It has become such a key part of modern business strategy that many don’t even realise they are doing it.
“In this continuously evolving food sector, it is clear that opportunities for R&D tax relief are yet to be utilised”