Agri businesses could be behind the times on R&D Tax

Farmers and rural business owners could be missing out on a fortune in tax breaks – because they don’t realise their work qualifies as innovative research and development (R&D).

Along with the rest of the team at Douglas Home & Co, I am working tirelessly to urge those running businesses in the agriculture sector to seek help with this asap, by identifying which elements of their hard work could be eligible for R&D tax relief.

Part of the problem is that most people think R&D only happens in laboratories with people in white coats. Wrong! Rural businesses are often involved in costly experimentation that could solve long-standing problems – they just think of it as an everyday part of the job.

Tackling problems is nothing new for farmers and those in the rural industry, whether it is to combat cattle disease, looking at ways to improve animal breeding techniques, trying to increase milk yields, or improving the quality of eggs.

Many of these attempts to address problems which don’t have a documented solution could be seen as R&D qualifying activity – yet this remains little known across the sector. That’s something we want to change.

If you’re still not convinced, maybe this will help persuade you: one of our clients is a Scottish dairy farm which clawed back an impressive £85,000 tax refund for two years of work trying to increase milk yields – the kinds of things they would be doing as a matter of course.

They’d poured investment into a variety of possible solutions, including using genetics to follow bloodlines, doing detailed comparisons between different feeds and how they impacted yields, along with a host of other experiments to reduce disease and improve udder health.

The Government’s R&D tax relief scheme is aimed at reimbursing part of the costs borne by businesses working on such innovative projects in science and technology. It does that by providing relief on corporation tax.

Of course, we have clients who genuinely do work in labs, doing all sorts of smart stuff like designing new drugs, producing more effective additives for the brewery sector or work on genetics, embryo transfer and IVF.

But for everyone working on genetics or IVF in the lab, there are an army of farmers experimenting on their herds with different insemination techniques based on the age of the animal, the point in the breeding cycle or even the animal temperature.

For example, we had a client who was taking the temperature of every cow every day –anyone who has tried to manage cows will know how difficult that is. Depending on the size of the herd that would be a considerable work load for farmers and their staff, which comes with mounting costs.

It’s a similar story on sheep farms where they may be experimenting with a range of ways to address foot disease with methods such as trialling medication, treatment plans, bedding and the effects of their surroundings.

Or in poultry farms where the operators are constantly varying and testing ways to make shells thicker or eggs bigger. Many farmers simply see these kinds of developments as part and parcel of animal husbandry, rather than R&D.

The reality is that this work by farmers comes at a cost. Getting a better milk yield from cows might involve extra feed or different bedding – both of which are costly. Farmers might also be trying to get more protein into grass, which means more fertiliser, sprays and increased costs on machinery fuel and repair. Those may be costs which can be partly recovered.

The latest HMRC R&D reform has resulted in changes that come into effect from the 1st of April 2023. From that date, companies will need to tell HMRC within 6 months of the end of the period in which the claim relates that they intend to make a claim. Companies that have claimed in one of the preceding three periods will not need to pre-notify.

We urge those who believe they may be undertaking work that could qualify for R&D tax relief to seek professional accountancy advice quickly so they can either claim in this financial year or be prepared to inform HMRC that they will be filing a claim within the new time restrictions.