Agri-tech and the R&D tax relief scheme
There are many factors that influence food production, including the climate, the types of naturally occurring and cultivated vegetation and the viability of the country's overall economy. Agricultural technology is revolutionising agricultural production by helping to ensure food security, reduce greenhouse gas emissions, and utilise natural resources more efficiently. To make these breakthrough innovations, agricultural robots, agricultural drones and driverless tractors have found regular use on farms, while digital and precision agriculture make use of extensive data collection and computation to improve farming efficiency.
This type of investment is critical to global food security and environmental sustainability, and although agricultural R&D projects are associated with high economic returns, they are characterised by long term horizons and temporal lags. For this reason, it is most important that its stability is well supported.
The R&D tax relief scheme is an invaluable funding tool, which, if managed correctly, is extremely well placed to support high risk, long-term innovation.
R&D in the agri-tech sector is applicable to any technological innovation that aids progression. Typical examples include, but are not limited to:
- Improving methods and materials to increase crop yield, flavour and processing methods
- Improving methods to prevent infestation and improve soil quality
- The development of new crop strains to improve the nutritional value of food
- The introduction of better and safer fertilisers, biocides and biological pest control
- Improvements to waste handling processes both in storage and in harvest
- Developments in packaging technology
- Utilisation of new technologies to increase efficiency and/or cut costs of existing processes
- Improving soil management and irrigation techniques
- Experimentation with new chemical and organic fertilisers
- Relieving pressure on resources & natural resources
- Proofing against environmental threats and resilience including disease and disaster
- Reducing energy use
- Improving labour productivity through robotics and machines
- Creating innovation in vertical farming (more yield on less space)
The R&D scheme works by giving additional corporation tax relief. The current rate of extra relief on qualifying expenditure for small and medium sized businesses (SMEs) is 130%. If a company spends £100,000 on qualifying R&D, an additional deduction of £130,000 is given against taxable profits. This means that a claim which identifies £100,000 of expenditure benefits a company by reducing its tax bill by £24,700 (at a corporation tax rate of 19%).
When a company is in a loss-making position, the R&D tax credit allows the company to ‘surrender’ some or all of the loss to HMRC, in return for a 14.5% payable cash credit. In the above scenario, the company would surrender up to £230,000 of losses in return for a £33,350 payable cash credit (i.e. 14.5%). Put simply, this gives a benefit of somewhere between 24.7% and 33.35% of the qualifying expenditure identified, depending on the company’s tax position.
If you would like us to undertake a complimentary review or to assess your eligibility to make a claim, then please get in touch at hello@yes.tax
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