Welcome to our summer edition of Farming Matters. A lot has changed since our last issue and most of our conversations and the underlying theme of…
Companies conducting qualifying development work can claim government-backed tax reliefs of up to a third of the associated costs. As a firm we are seeing increasing numbers of our agricultural sector clients embracing technological advancements and seeking out scientific and technical improvements making these reliefs particularly relevant. It is important to stress that the scheme is only available to those businesses trading as limited companies and not to partnerships or other business structures. It may be that the numbers work so that creating a limited company for these activities is viable – but advice should definitely be taken before going ahead.
WHAT IS ELIGIBLE R&D?
The scope of what is covered under R&D is broader than you may think. If there is some element of our work that you cannot do – and to do this you need to create a solution which isn’t available in the marketplace then you could be eligible to claim R&D tax credits. This could be using technology in a new way or even designing new technology to improve or create a process, device, service or product to ultimately mean that you can run and grow your business. Whether the project achieves its objective or not, does not matter and any field of science or technology may be the focus of an R&D project. The following are just some of the example areas within the agriculture sector that could qualify:
- Improving or developing new harvesting methods
- Disease protection or prevention
- Pest protection
- Improvement in crop yield
- Resistance to environmental factors
- New crop growing techniques, for example vertical farming
- Livestock monitoring systems
- Breeding programmes to improve yield or prevent disease
- Livestock feeding methods or formulation
- Animal housing and welfare
- Waste reuse or repurposing
- Integration of renewable technology, anaerobic digestion plants for example
HOW DOES IT WORK?
Once eligible activities have been identified, a company may look back to the last two accounting periods for the associated qualifying R&D spend on permanent and temporary staff costs, materials used (including utilities), subcontractors and software licences. Relief is then claimed under one of two schemes – the SME scheme (broadly for those with fewer than 500 employees) is the more generous but comes with complex conditions. Relief is claimed in the company tax return and is given by way of a reduced tax liability of up to a quarter of the qualifying spend. If the company has current year losses it may claim a payable cash credit of up to a third of qualifying spend. There are rules around claiming state aid (government grants etc.) under the SME scheme which may mean that a company may only be eligible for the less generous RDEC scheme. This is calculated as 12% of qualifying R&D spend (c.10% net of tax). Our team will be able to advise on this. PKF Francis Clark has a specialist R&D team, including a time served engineer, who have experience across a large number of sectors, including agri-tech. For more information, or if you have any questions, please get in touch.