Agriculture R&D Tax Credits

Everything you need to know about R&D tax credits in agriculture!

R&D tax credits are a Government incentive to reimburse some of the money spent on innovative activities as tax relief. Agriculture R&D is often an overlooked area of opportunity for companies to reclaim their benefits and improve their cashflow.

HMRC R&D tax credit statistics for 2022 revealed that there was an 11% reduction in R&D expenditure in the agriculture, forestry, and fishing sector with 1180 R&D claims, at an average value of £42,373. There is potential for more companies to claim in this space and be rewarded for their innovation.

Qualifying R&D agriculture expenditure for tax credits

It’s important to remember that the key to claiming Agriculture R&D tax relief is demonstrating an appreciable improvement with scientific or technological uncertainty. In simpler terms, your project should be trying to solve a problem in a new way, even if it doesn’t necessarily succeed.

We have an in-depth explanation of eligible expenditure for R&D tax credits here, but generally, they can be claimed for the below when they are involved in the R&D process:

Staff costs
Materials or consumables
Software
Subcontractors
Externally provided workers
Clinical trial volunteers
Pure mathematics

Therefore, qualifying expenditure for R&D activities in agriculture specifically would mean claiming back the above costs when involved in activities such as:

Developing a sensor system for optimising irrigation based on real-time soil moisture data
Investigating the use of drones for targeted pesticide application
Testing the effectiveness of fertiliser for weed suppression and soil health improvement
Developing a machine learning model to predict optimal harvest times for fruits and vegetables
Trialling the use of autonomous robots for weed detection and removal
Using agri-tech or new technology to limit contribution to climate change

These are just a few examples, and the possibilities are vast. As long as your project involves innovative approaches to address agricultural challenges and advancements, it could be eligible for R&D tax credit relief.

Which scheme should you use to claim Agriculture R&D tax credits

Before April 1st 2024, companies will be categorised as SMEs (small and medium-sized enterprises) or large companies (who use the RDEC scheme).

However, after April 1st 2024, the UK Government will merge the SME and RDEC scheme. This will mean a single set of rules for both large and small businesses in agriculture. We have a comprehensive guide on more information regarding this merge here.

The main difference between SMEs and large companies is that generally SMEs receive a higher rate of tax credit compared to large companies.

The benefit of R&D tax credits in Agriculture

Using R&D tax credits is a huge incentive for the agriculture sector. The tax return is typically paid out as a cash credit, which can significantly improve a farm’s cash flow and profitability. This can be crucial for covering operational costsand future investments.

Knowing that a portion of the costs associated with R&D projects can be claimed back through tax relief can make farmers more comfortable taking risks and trying new approaches. This can be particularly helpful for smaller farms that might otherwise be hesitant to invest in untested ideas. Even if a project fails, you can still claim tax relief for it.

According to official figures, agricultural businesses make just 1% of all R&D tax claims. In contrast, manufacturing made around 22% of all claims. According to this, agriculture as a sector is hugely missing out.

Maximise R&D tax credits for farmers and the agriculture industry

Have a look at our loan calculator tool to find out how much you might be owed for Agriculture R&D!

The first mistake that companies make is not making an R&D tax credit claim for agriculture at all, and the second mistake they make is not taking out a tax credit loan while they wait for HMRC to process their claim.

It is not uncommon for there to be delays in HMRC processing R&D relief claims and this can inevitably cause problems for some companies for a variety of reasons.

R&D tax credit loans are safer ways to improve your cashflow sooner, allowing you to get your money within a matter of days. Once HMRC processes, approves and pays your tax credits, the loan you received is paid back to the lender.

This allows you to reap the benefits of R&D in agriculture sooner, and boost your business, rather than waiting for payment.