The latest HMRC research and development statistics, released on 27th September 2018 show the agriculture sector as making up less than 1% of claims submitted for R&D tax credits.
The R&D tax credits scheme incentivises companies in all industries to invest in research and development. The companies will be entitled to a corporation tax reduction or a tax credit refund based on their qualifying expenditure.
It is estimated that the agriculture, forestry and fishing industries are currently claiming less than half (£41,000) of the national average (£85,000) in terms of claim size across all industries.
At first glance, a correlation may be found in the fact that the agriculture industry employs 1.5% of the UK workforce and only contributes 0.62% of its GVA. This may partially account for the number of claims submitted but cannot explain the size of claims being put through. The size of claims can only be explained by the amount of R&D being carried out by that particular sector.
What we have found from claims submitted on behalf of farmers, is not the lack of R&D within the agriculture industry, but rather the lack of awareness that many of the day to day activities partaken by farms are made up of high R&D.
What may be a normal process for the average farmer, i.e. trialling new fertilizers or testing new soil conditions with the overall aim of increasing yield and productivity, is in essence exactly what the HMRC look for in qualifying R&D claims.
National changes in eating habits and lifestyle choices also have their part to play, they are shifting many farmers towards organic farming in an attempt to sustain profits. Farmers are having to supplement their income with diverse activities away from pure agriculture. Biofuels are great example of how the agriculture industry is utilising the rise in fossil fuel prices as well as climate change to open the doors to new opportunities of income as well as the adaptation of an existing industry to meet the challenges and changes of modern day.
Unfortunately, the reaction of nearly every farmer we have approached has been “we won’t qualify, we don’t do R&D”. This is not surprising, as the very term “Research and development” conjures images of scientists in lab coats, working on experiments, an image far distant from the labour-intensive work-life of the average farmer.
A simple demonstration of how the R&D incentive applies to the agriculture industry, is by imagining it 50 years ago and seeing it in its current state. Without doubt most farmers will be able to list many challenges and changes that have developed within their lifetime and explain how these changes have helped enhance the agriculture industry to what it is today.
In a nutshell, this is how the R&D is qualified, by encapsulating these challenges and changes over the smaller qualifying period (2 financial years retrospectively & the current year). An apportionment of the company’s expenditure can then be included in its R&D Tax claim.
This financial incentive from HMRC should be fully utilised by this industry and it is imperative that we promote awareness and guidance to the many farmers not taking full advantage of it.