Agri-Food Sector, Feeling Taxed? Want Relief?
02 October 2013
Most commentators seem to be in agreement that research and development activity remains critical to the success of our local economy and this certainly rings true for our agri-food sector, largely because of what Richard Moore has referred to as the “very short sales career” of new products which in turn feeds the need for constant innovation. There’s also the constant pressure to increase yields, extend shelf life and reduce packaging.
With the age of real austerity fresh in all our minds, it’s little wonder that accusatory headlines about the tax antics of Starbucks, Google and Amazon grab our attention. Whilst some would say “too little too late” the UK Government has noticeably stepped up efforts to prevent evasion and avoidance.
At the same time, there has been a notable shift in policy with the Government stating its intention to make the UK one of the most competitive tax systems in the G20. There can be little doubt that schemes such as the Patent Box and the R & D tax incentives will be vital to attainment of that goal. Yet not enough of companies operating in the food and drink sector are availing of the R&D Tax Incentives.
Whilst the R & D Scheme has been around much longer than Patent Box, we still seem less inclined in this part of the world to make use of it, some commentators reporting that uptake in the agri food sector is particularly low. It’s my view that this is largely because of some of the myths associated with the Scheme.
Debunking the myths around the R & D Tax Incentive Scheme
Firstly, it is presumed that to make a claim under the Scheme, the company bringing the claim must own any intellectual property created during the R & D when in fact, this requirement was removed from the Scheme back in 2010. This is good news, particularly for those collaborating with our local universities.
Secondly, it’s generally presumed that the Scheme is only for high-tech companies when in fact, it’s open to any UK company undertaking problem-solving activity to develop a new or better product and/or process. That means that a very broad range of activity can fall within the Scheme. Furthermore, the Scheme is open to all sectors and could be of particular interest to those in the agri-food sector who may, for example, be actively working on new packaging designed to increaseproduct shelf life.
Thirdly, it is presumed that your R&D has to have been a success when in fact, failed R&D may well qualify. Providing a project seeks to achieve an advance in science or technology, then failure is still an indication that a scientific or technological uncertainty does exist.
Fourthly, it is presumed that the R & D activity has to be undertaken in the UK when in fact, there is no such geographic restriction and there is no requirement that any proportion of the activities take place in the UK. This is unusual as most R&D tax incentives available in other jurisdictions require some or all of the qualifying expenditure to take place in that jurisdiction. The only requirement here is that the expenditure is deductible for tax purposes in the UK.
Myths aside, it’s clear that thousands of companies are overpaying billions in corporation tax whether because they are simply unaware of the R & D Scheme, or because their advisory teams don’t have the technical knowledge or experience to appreciate that their activities fall within the Scheme.
Making it simple to understand to understand
Making this scheme simple for clients is a question of considering the questions below. If a client can answer yes to one or more of the following questions and is not currently claiming relief under the Scheme, they could be one of the over payers:
· Do you make bespoke or customised products?
· Do you develop or get involved in introducing any new products?
· Do you endeavour to make environmental improvements to your processes?
· Do you consistently make improvements to your manufacturing processes?
· Do you carry our design work in-house?
· Do you engage sub-contractors to carry out design work?
· Do you carry out prototyping; make models, patterns or tooling?
· Do you develop/improve any software in-house?
· Do you change the composition of your products in response to changes in legislation?
· Do you regularly problem-solve to meet your customers' needs?
With companies in the Agri-Food sector coming under stiff competition and tough margins, the Scheme is certainly worth considering and utilising if companies in the sector are eligible. More information on the Scheme and how to claim relief can be found at http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm.