Agriculture is a rapidly changing industry, with growing environmental concerns and the need for increased productivity driving innovation and new practices. Despite this, in 2018-19 research and development (R&D) tax relief claims by agricultural businesses accounted for less than 1% of total claims submitted to HMRC. This means companies may be missing out on valuable tax reliefs.
R&D relief is available to companies only, with the relief available dependent on the size of the company. Companies with less than 500 staff, and either turnover of under €100m or a balance sheet total under €86m can claim under the small and medium enterprises (SME) scheme. A separate relief applies to companies that do not meet the definition of an SME.
SME R&D relief allows companies to:
- Deduct an extra 130% of their qualifying costs, as well as the normal 100% deduction, giving a total tax deduction of 230%;
- Claim a repayable tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss.
What counts as R&D?
The R&D tax relief scheme is designed to encourage spending on research and innovation. It is available for qualifying projects that make an advance in science or technology and resolve an uncertainty.
Even if the project is unsuccessful, a claim may still be made. In fact, initial failure is a good sign that there was an uncertainty to resolve.
The relief is for costs relating specifically to the research and development and includes staff costs and consumables such as materials and utilities.
There is also a relief available for certain capital assets purchased for qualifying R&D projects that may be more attractive than the standard capital allowances available.
How does this apply to farming and agriculture?
The following are examples of the types of project that may qualify as R&D:
- Creating and trialling new seed plant varieties to improve yields;
- Feeding trials for livestock, looking at, for example, the type and process of feed
- Selective breeding of livestock;
- Trials involving growing conditions, for example light, heat or humidity in a greenhouse.
Many farmers consider this part of their day job and do not realise that what they are doing with their experience and expertise could qualify for a valuable tax relief.
If you would like to discuss these possibilities further, please do get in touch.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.