R&D tax claims in the Agriculture, Forestry and Fishing Industries

In 2020/21 there were 1,275 R&D claims in the Agriculture, Forestry and Fishing industries; of these, 1,180 were small and medium sized enterprises (SMEs) and 35 were R&D expenditure credit (RDEC) claims, made by large UK companies. These claim values had a combined eligible expenditure of £375m, with resulting savings to the taxpayer of £70m[1]. It is suspected that thousands of companies, particularly in the agriculture sector, are unaware of these potential savings and, as a result, are not claiming and missing out on such incentives. 

by Mathew Browne

What activities qualify as R&D?

To qualify for R&D relief a project needs to satisfy two key criteria:

• An advance in science or technology
• Seek to overcome scientific or technological uncertainty.

Examples of potentially qualifying activities in relation to arable and livestock farming could include:

• Undertaking a systematic approach to improve soil quality, crop yield or crop disease resistance through trialing new varieties
• Overcoming technological or scientific uncertainty in the process of seeking harvest optimisation
• Overcoming uncertainty through selective breeding trials or feeding trials to achieve an advance in genetic traits or type of feed
• Undertaking trials to reduce the use of or need for antibiotics.

In the agriculture industry the majority of claims are in the agri-tech space where the UK government is investing £160 million[2] into its Agri-Tech strategy. If you are working on a project that develops new technology to provide solutions to problems in agriculture, farming, and food production and distribution such as drones, sensors, scanners, smart software, robotics, analytics or data monitoring you may be eligible to make an R&D tax claim.

Recent developments in the R&D tax arena

Recently, we have seen an increased administrative burden for companies making claims. The CT600L form became compulsory for companies claiming a repayable credit and SMEs must now disclose the company PAYE and NIC cap under certain circumstances. 

From April 2023, the government will clarify the definition and what qualifies with regards to data and cloud costs, although they propose to withdraw relief for certain R&D activities undertaken outside of the UK.

Furthermore, HMRC are seeking to tackle abuse of the scheme which they have detailed as being led by un-regulated agents. The proposed new measures set out that:

• Claims will need to be made digitally and include a level of mandatory substantiation (yet to be detailed what exactly)
• Claims to be endorsed by a named senior officer of the company
• Companies will need to inform HMRC (proposed to be 6 months in advance from the end of the accounting period), that they plan to make a claim
• Claims will need to include details of any agent who has advised the company on compiling the claim.

Interaction with The Farming Innovation Programme (FIP)

At the end of last year, the Department for Environment, Food and Rural Affairs (Defra) launched the first rounds of funding in relation to their FIP. £17.5 million was allocated across three competitions in an industry-led Research and Development Partnerships Fund (delivered with UK Research & Innovation (UKRI)). To qualify, projects in this area had to be led by businesses to cover the traditional arable, livestock and horticulture sectors, as well as funding innovation in novel food production systems such as automation, controlled environment agriculture, bioeconomy and agroforestry.     

Towards the end of 2022, FIP will open a new fund, namely “The Projects to Accelerate Adoption Fund.” This is for projects that focus on immediate, on-farm productivity challenges. This includes challenges through smaller-scale, farmer-led research and development projects to trial and demonstrate the on-farm viability of new as well as existing technologies, processes and practices.   

If you believe you may qualify for this fund, or have applied for any such funding (successful or not), please get in touch as firstly it is a good sign you may be eligible for R&D relief and secondly it is important to note the funds received may impact on the quantum of the R&D claim. This is often an area overlooked in submissions and is something HMRC are continually monitoring.

How it can work successfully in practice

The team at UHY RB have successfully secured R&D funding for a number of businesses within the agri-tech space. The most recent of which was for a company which was responsible for building advanced agricultural software to enable organisations to engage with their farmer and grower customers regarding the optimisation and efficiency of the output of their land.

The software solutions developed by the claimant company informed better on-farm and business decision making, enabling long-term profitability and stronger relationships through sustainable input efficiency.

One of the software applications developed by the claimant sought to build an innovative market leading software tool to assist farmers drive efficiency, optimise soil fertility, and easily generate compliance paperwork. The development team overcame technological uncertainty to create a holistic solution for grass management and nutrient planning in one user-friendly application.

The next steps

The agriculture sector in the UK is one of the most innovative in the world. With constantly evolving techniques and machinery to improve the performance of the sector, it is inevitable that R&D tax relief opportunities are being missed. The ever-changing regulation and increased administrative burden surrounding R&D claims also make it increasingly important to engage with an experienced R&D specialist when evaluating a potential claim.

If you are considering a potential claim, or would like to discuss the possibilities of making a claim for your business, please contact us at UHY Ross Brooke, and we will connect you with a member of our rural and agriculture team and one of our R&D experts.

[1] Corporate tax: Research and Development Tax Credits – GOV.UK (www.gov.uk), 2020-21 figures are provisional and have been uplifted to include estimates for claims not yet received.

[2] £160 million investment in the Agri-Tech sector: an opportunity for you to participate (publishing.service.gov.uk)