Growers, food processors and agri-business industries could make welcome tax savings by claiming for expenditure into research and development, according to accountant Old Mill Rural Services.
Although R&D is not an immediately obvious expense for farmers, those investing in specialist breeding programmes or developing particular technologies for use on the farm could qualify for the tax relief.
“Tax breaks for this type of investment have been around for a number of years, but many businesses have been deterred from making an claim as they feel that they need to be involved in very high-tech work - this simply is not the case,” said corporate tax manager Isobel Savage.
In August, HMRC increased the tax relief from 150 per cent to 175 per cent, enabling small and medium-sized businesses to deduct 175 per cent of qualifying R&D expenditure against profits.
Businesses must spend at least £10,000 per annum to qualify, but this can include a wide variety of related costs, including employee salaries, overheads such as heat and light, materials costs and even an element of costs from subcontractors, she adds.
“The R&D work must be relevant to the business and there needs to be an intention to exploit the benefits from this commercially,” Savage said. The work should involve developing scientific or technological knowledge that isn’t commonly available, to improve a product, process or service.
“In related businesses such as agricultural engineering or added-value food production the opportunities are far clearer,” said Savage. “While many businesses may already be making claims, the increase in the tax allowance should lead all businesses engaged in these sectors to consider their options carefully.”
A business with qualifying expenditure of £12,000 a year could now claim a deduction for tax purposes of £21,000. For a higher rate taxpayer that would reduce the tax payable by £3,690, while for a small company paying tax at 21 per cent it would save £1,890.
“R&D is an essential part of many agricultural businesses, but hands-on farmers may not even be aware that they can claim these expenses back,” said Savage. “With the increase in the relief available, farmers and related industries could make considerable savings. And with the deadline for online tax returns looming, businesses should speak to their tax advisor and work out whether they are eligible to claim this valuable tax relief.”
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