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Whether it’s the launch of the cheesiest-tasting vegan pizza, a delicious sugar-free soft drink or an innovative way of keeping fruit fresh in the bowl, there’s a huge amount of scope for Research and Development (R&D) in the food and beverage industry today.
There’s no denying it, this sector is massive and easily worth hundreds of millions of pounds each year, with a vast R&D budget to match. There is substantial and unrelenting pressure on producers to offer food and drink which is cheaper, healthier, longer-lasting and more ethically produced than ever before, whether this pressure be from consumers, regulators or others.
When you take a stroll around the supermarket, it’s not hard to find all sorts of products (cynically speaking you could read these as gimmicky) that are “Reduced fat”, “New and improved” or “30% less sugar”. Marketing does of course hold huge power within the food and drink industry, but behind a lot of this marketing a large amount of time and money will have been spent on researching these claims. Additionally, there are all sorts of drivers that stimulate Research and Development in this sector.
Unfortunately when it comes to R&D tax relief, there are many myths floating around as to what actually qualifies. Many businesses mistakenly believe that their work is not eligible and that such financial incentives are only extended to technology and pharmaceutical companies. However, in reality, there are businesses from a massive variety of sectors that can benefit.
There are a few key areas that are most likely to keep food technicians occupied in both the UK and abroad:
Not a particularly fascinating one but certainly compulsory. This applies when government (or a government agency) makes a very definite demand to say that a certain standard must be met. It is often something that is high profile in the media, such as the 2016 sugar tax which was unveiled by the chancellor at the time, George Osborne. The directive stipulated that fizzy drinks containing over 5g or 8g of sugar per 100 millilitres would be subject to levies of 18p and 24p a litre respectively. Arbitrary changes such as these can send R&D projects into overdrive as companies work out how to reformulate the products they offer without compromising on taste.
This is a particularly fluid area of R&D in the food and drink industry, and it’s one which can be heavily associated with gimmicks. Things like “How can we appeal to teenagers?”, “Why do less and less people drink coffee?” and “What gluten-free products should be next in the range?” are particular examples of this. Although there is a strong corporate edge to this kind of R&D, it really aims to put companies in the best light, as if they are trying hard to give consumers exactly what they want. Healthier options, free-from, organic and local produce are all examples of consumer trends which companies would do very well not to ignore.
Again, not massively exciting but still extremely important. Commercial factors include things like improving shelf-life - a demand that a key distributor such as a supermarket might make so that products don’t spoil too quickly. Alternatively, there might be a drive towards efficiency, where a company wants to make its food and drink as affordable to consumers as possible whilst remaining profitable at the same time.
When it comes to the food and beverage industry a lot goes on behind the scenes, particularly for manufacturers operating on a bigger scale. Research and Development is therefore often centred round process changes such as improved standards, increased output and new machinery so that the end product remains consistent.
A particular trend in recent years, the ethical production of the food and drink we consume is of ever increasing importance. For example, customers want to know where their meat has come from, how it was reared and how animals were slaughtered. For things like tea, coffee, sugar and fruit, people look to be reassured that it’s produced sustainably and that farmers in developing countries are paid fairly. There are indeed numerous elements that can act as drivers for R&D regarding ethical factors in the food supply chain across the globe.
Whatever products a food and drink company actually produces, the projects it can carry out in relation to R&D are many and varied. The production of new ranges is an obvious one, but others include:
For instance, let’s consider new equipment. If a company is looking to introduce a new piece of machinery to a production line so that it can cut costs and boost efficiency, this equipment may need to be tested and modified before it can be used. If this is the case, engineers would need to be taken on by the company to carry out the work. It may also need to be tested for use with particular ingredients to make sure the products it creates remain consistent. The costs involved in all of this may well be eligible for an R&D tax credit claim.
Claiming R&D tax credits for development in the food and drink industry is pretty much the same as for claims made by other industries. Depending on the company’s size, claims will be dealt with via a Corporation Tax return, either under the RDEC or SME scheme.
The process for claiming can be rather time consuming and isn’t always straightforward. All eligible costs must be collaborated with evidence and added together so that the calculation for R&D relief can be entered on to the CT form. Essentially, a company must be able to not only explain the R&D project in question, but also demonstrate why it believes it qualifies for the relief.
As with many tax-related issues, it’s vital to get your application right. Getting it wrong can not only be an expensive waste of time, it can also land you in serious hot water with HMRC. This makes it even more important to seek advice from a well-established, highly knowledgeable tax specialist such as ourselves. At Myriad Associates, we have extensive experience in helping a range of companies make successful R&D tax credit claims, both in the food and beverage industry and beyond. Call us today on 0207 118 6045 or use our contact page to find out how our friendly team can assist you.