What is research and development?
Research and Development (“R&D”) tax relief provides innovative businesses with a valuable tax incentive where works have been carried out on a project that seeks to achieve an advancement in the overall knowledge or capability in a field of science or technology.
The relief can be for capital or revenue costs but is only available to companies, with the rate of relief being dependent on whether the claim is being made under the small or medium sized company (SME) scheme or the R&D Expenditure Credit (RDEC) large company scheme.
Many farming businesses are run as partnerships and so cannot qualify, but this could be a planning point for innovative farmers as incorporation may be worth considering for those wishing to make the most of this generous scheme.
For SME companies for every £100 spent, the net cost to the business after R&D relief is only £56, compared with £81 without the relief. The net saving is 43.7% of the qualifying R&D spend. Qualifying costs are generally those spent on staff, consumables and materials, subcontractors, and software. Further guidance on R&D relief can be found here .
What types of projects may qualify for r&d
Within the sector the possibility for claims is vast and if you think you may have a qualifying project then do please get in touch to discuss the detail.
Examples of some of the development works that are likely to qualify are:
- Disease control
- Sustainable farming
- Animal welfare
- Waste reduction
- Pest control
- Robotics and artificial intelligence
- New machinery
- Increase of yields
- Soil management and smart irrigation
- Vertical farming
How could R&D relief help during Covid-19
With all the uncertainty and financial concerns facing businesses at present, dealing with R&D claims for earlier years may not necessarily be a top priority. R&D is however a fantastic form of tax relief which can result in cash back for a company, either by producing a refund of tax already paid or through the surrender of R&D losses to HMRC for a 14.5% cash credit.
Where a profitable company has yet to pay HMRC for its current year corporation tax liability, the R&D claim will instead reduce the tax payment to be made to HMRC by the due date.
A company only has a two-year window to deal with its R&D claims. For example, a company with a year end of 31 December 2018 will need to submit its claim before the end of December 2020.
We recommend you get in touch to ensure any R&D claims are dealt with as soon as possible. HMRC can then begin processing any repayment and/or your business can accurately pay only what is due by the payment deadline.
Special rules and conditions
To claim relief, a company must be a going concern. There are also special rules if a company has received state aid in respect of the project, or any other form of funding, which can limit the claim available.
If you think your company may have carried out R&D and is now looking to make a claim, or if you would like to discuss any of issues raised, please contact AG Tax Consulting or your usual point of contact.