What is R&D Tax in Food & Drink and how does it work?

The food and drink industry is a major contributor to the UK economy. It is the largest in the manufacturing sector and accounts for 400,000 jobs in the United Kingdom. Many of these are in SME firms that produce products for consumption in this country and across the world. Exports are growing annually, and this is a trade that the UK relies on to expand into new markets and drive trade.

In a survey, 89% of those in the food and drink industry said they were involved in new product development. This is a refreshing piece of news, where we can see that the UK food and drink industry is not sitting on its laurels. They are prepared to look for new products, new flavours, new varieties. Many of those that responded to the survey stated that they were involved on long-term calorie reduction schemes. This is great news for consumers, as products become healthier and the nation as a whole benefits.

Things are looking up for the UK food and drink industry…

A dark cloud 

One finding from the report throws somewhat of a dark cloud over the air of positivity. One line jumps out of the report to us at Harlands –

“Just 54% of manufacturers surveyed had accessed Government R&D tax credits.”

Let’s check that again. We have 89% of businesses involved in developing new products, but only 54% claiming R&D tax credits. This mismatch shouldn’t be.

R&D tax is perfect for the food and drink industry. The materials, equipment and staffing hours it takes to develop a new product, reduce calories or adapt what you already make is the very definition of R&D in the eyes of the HMRC. Making a claim for R&D tax credits should pretty much be a given for a food manufacturer of any size. There are so many different reasons they might be involved in R&D –

• Changing ingredient lists to meet new legislation
• Developing a new flavour of an existing product
• Lowering the salt, sugar or calorie content of an existing product
• Coming up with a completely new product

The fact that all of these activities carry a risk is what makes them ideal for an R&D tax claim.

What does this mean to a food and drink manufacturer? 

It can mean quite a lot, in terms of the finances. The average size of a claim that we claim on behalf of our clients is over £35,000. If you have not made a claim for the last 2 tax years, then we can get a claim in for those as well. If you carry out any of the activities above, then there is almost definitely a qualifying claim sat in your business. Don’t let the next tax year pass and find out that you have missed out on a large sum of cash.

People think that this is a part of the aggressive tax schemes that have come under such scrutiny over the last few years. And companies don’t want the negative publicity that goes with this. But, this is not the case at all. R&D tax claim are encouraged by the government. They have backed it with billions of pounds. In fact, you should make R&D tax a part of your overall business strategy.

How does it work?
 

The process of making an R&D tax claim is quite simple. You need to let the HMRC know that you want to make a claim, and support this with evidence. They will need to know what you did (the story of your project) and how much it cost (the figures) in order to assess a claim. Once they are in receipt of all this information, the tax man will get back to you with any questions, and often get the money into your business quickly. This can be as little as 6 weeks if the claim is submitted correctly.

The food and drink industry are serial under-claimers. If 89% are involved in product development, then 89% should be making a claim for R&D tax credits. Even failed projects are eligible for a claim. The new flavour or products doesn’t have to be launched to the public for a claim to be made for the money spent on taking this commercial risk. If you have any questions at all about your food and drink business and R&D tax then please don’t hesitate to get in touch.