Rural businesses are missing a tax opportunity
Figures released by HMRC show that the agriculture industry accounted for fewer than one per cent of claims for research and development tax relief.
R&D by small and medium enterprise companies is actively encouraged by Government through a range of tax incentives which continually improve year on year. This tax relief applies to projects that seek to advance knowledge or capability in the fields of science or technology.
According to HMRC, for the 2016/17 tax year the total claimed under the SME scheme as a whole was £1.8 billion.
Agricultural, forestry or fishing companies accounted for about £10 million, or 0.55 per cent. These figures show that this tax relief is being under-claimed by companies in the agricultural sector, either through a lack of awareness of the relief or a belief that their work does not qualify.
A few examples that may qualify are new or improved feeding techniques for livestock, and improved processes to increase yield.
The SME scheme provides two main elements of relief for qualifying revenue expenditure – an increased deduction for R&D revenue spending of 230 per cent, and a payable R&D tax credit for companies not in profit set at 14.5 per cent.
If the impact of this revenue deduction is that the company incurs a loss which it cannot relieve until a future period then it can be converted into the repayable tax credit.
The repayable credit is now 14.5 per cent of the loss surrendered to HMRC. This means that for every £100 of qualifying cost, the corporation tax liability is reduced by £43.70 and that loss-making companies can receive £33.35 for every £100 spent on qualifying R&D.
Examples of recent company R&D claims in this sector include:
• Developing new mixes of compost to improve the growth of plants in different environments;
• Developing a superior poultry feed in order to improve overall animal welfare and egg production;
• Design of a control programme to enhance production of commercially viable potatoes.
To obtain SME R&D relief the first essential matter to determine is whether HMRC would accept that the particular activities constitute R&D and the second is making sure the relevant conditions are met with your tax advisor.
Roy Jackson, Partner at Whittingham Riddell
