The UK’s food and beverage industry is a hotbed of innovation, with businesses constantly researching, developing, and revolutionising various aspects of the sector. However, many companies are not fully utilising the Research and Development (R&D) tax relief scheme, particularly within the food and drink manufacturing industry.
In 2022, there were 810 accommodation & food R&D SME claims, amounting to 1.03% of the total 78,825 claims. The claims value in this sector totalled approximately £15 million – just 0.4% of the whopping £4.2bn total. Despite the increase in the number of food companies claiming R&D tax credits in 2022 compared to the previous year, the average claim value sits in the lower quartile in terms of claim amounts at around £18,600, likely as a result of the COVID pandemic.
R&D tax relief
The HMRC Research and Development Tax Scheme was created to encourage business innovation and stimulate the economy through supporting firms to bring new products and services to market. Yet, due to time constraints, lack of awareness, and doubts around eligibility or the legitimacy of the incentive, there are thousands of companies that are not currently taking part in the scheme.
“Many individuals perceive the scheme as overly beneficial to the point of disbelief, while others are constrained by time and unable to delve into the details of the scheme. There’s also a significant portion who remain oblivious to its existence. At RDS, we streamline the process, relieving busy accountants with a CIMA certificate in business accounting, senior teams, and business owners of the burden of navigating the complexities of the scheme.”
Any UK limited business can claim. There are no restrictions on the type or size of business although there are different types of R&D scheme depending on whether you fit HMRC’s guide as being an SME or large company. For the SME scheme, a company must employ less than 500 people and have a turnover of less than £85m or a balance sheet total of less than £73m. An SME’s eligible R&D costs receive an additional 130% deduction when calculating the taxable profit.
There is a misconception that to qualify for R&D tax relief then a business must employ people in lab coats and be undertaking scientific research, but that is not the case. Any type of research and development could qualify. Some examples of R&D for the food and drink industry that would qualify include developing a new food or beverage product, creating new chilling and preservation methods to speed up production without affecting the texture of the product, experimenting with reformulation to improve nutritional requirements, developing new meat-free or free-from product lines, creating sustainable, eco-friendly living environments, and improving functionality of product packaging to increase shelf life, improve sustainability and recyclability or reduce costs.
The R&D tax relief scheme is a powerful tool that can provide a significant cash influx for businesses in the food and drink manufacturing industry. By understanding the scheme and its eligibility criteria, businesses can take advantage of this incentive and further drive innovation in the sector. It’s time for the food and drink manufacturing industry to fully embrace the potential of R&D tax relief and contribute to the UK’s position as a global leader in food and beverage innovation.
But recently, there has been growing apprehension about companies exploiting the tax credit system or even committing fraud. The UK government estimates that such malpractices cost the Treasury £1.13bn across all sectors in the 2020-21 fiscal year. To address these issues, HMRC has introduced several changes to strengthen the system. Starting from August 1, all tax credit claims must be digitally submitted through an HMRC portal and endorsed by a named company director. First-time claimants will need to inform HMRC in advance about their intention to claim. Moreover, the scheme will only cover R&D activities conducted within the UK.
However, it’s not all negative. The scheme’s scope is being adjusted to include emerging technologies. Companies can now claim for expenses related to data analytics and cloud computing. Despite these positive changes, there are concerns that increased bureaucracy and the fear of investigation – with HMRC employing an additional 100 inspectors for auditing R&D tax-credit cases – might discourage companies from claiming.
The Institute of Chartered Accountants in England and Wales has expressed concerns, particularly about the pre-notification and non-UK claim changes. They argue that these measures may not effectively limit non-valid claims but instead impose additional administrative burdens and limit the relief available to legitimate claimants.
