RESEARCH AND DEVELOPMENT TAX CREDIT DO YOU DEVELOP AND CREATE NEW
RECIPES FOR YOUR MEAT PRODUCTS? YOUR BUSINESS COULD BE ELIGIBLE FOR A SUBSTANTIAL TAX CREDIT
Research & Development Tax Credits are a Corporation Tax relief scheme designed to benefit companies who are innovating in their sector. Where such activity is identified and claimed for it will reduce your company’s corporation tax bill, if your company is liable, or, in some circumstances, you may be eligible for a payable tax credit.
What is Research & Development? For this purpose, it is defined by HMRC. Whilst R&D may conjure up images of people in white coats working in laboratories, it can be applied across a broad range of industries, including butchery. R&D takes place when a company undertakes a project which seeks to achieve an advance in knowledge or capability in a field of science or technology.
Food production falls under this category.
If you have tried to develop a new product, or significantly improve an existing one, which is innovative within your industry, it may qualify. Examples of this might include:
- The development of new or improved product formulations to meet changing consumer habits,
- Changing your manufacturing processes so that you operate more quickly or efficiently,
- Extending the shelf life of your products,
- Improving your products’ resilience to freezing and defrosting,
- Making your products healthier without sacrificing taste or flavour.
We find many butchers are regularly undertaking qualifying R&D without even realising it, because innovation & experimentation are regular activities! Consumers are demanding products that are free from allergens, use ethical produce, contain less salt, fat or sugar, or are just easier to cook with, and demand drives innovation.
18 | CRAFT BUTCHER MAY/JUNE 2021
If you are able to demonstrate that you encountered some technical uncertainty during the course of your project, then there’s a good chance you could make a claim. You do not have to have finished your project to make a claim, and your project does not have to have been a success to qualify for relief.
Who can claim? You must be operating as a Limited Company in the UK.
How much could you claim? The average claim for an SME is around £60,000. Your company can claim for salaries, wages, class 1 NIC and pension contributions for staff actively engaged in the R&D project. You can also claim for agency staff, some subcontractors, consumable items & prototypes, including light & heat. Engaging a specialist R&D Tax consultant can help you identify and include qualifying costs, exclude non- qualifying costs and maximise your claim accuracy and value.
Once you have calculated your Qualifying Expenditure, HMRC enhance this figure by 130% - this figure is then offset against your Profits Chargeable to Corporation Tax.
For example, you may have spent some time improving your production process by introducing some innovative new techniques. Your costs may include, say, £20,000 on staff and £5,000 on ingredients which were wasted during trials – this would give you a Qualifying Expenditure of £25,000.
£25,000 x 130% = £32,500.
If you had made a profit of, say, £50,000, your pre-R&D tax liability would be £9,500. By claiming the above R&D relief, your profit is reduced to £17,500 and your post R&D tax would be £3,325 – this means your R&D claim would have saved you £6,175.
If you are loss-making, or the R&D pushes you into a loss, that loss can be surrendered for an SME Scheme Tax Credit of 14.5%.
How could an R&D Tax Specialist help you? The scheme is one of self-assessment but HMRC will require you to justify that your projects are qualifying activity. This can be done with a short technical report. An experienced R&D consultant will guide you through this process, helping you to understand the rules around what qualifies, and which costs you can claim for. They will then work with your accountant to submit your claim. Claims are made retrospectively through your company tax return, and historic claims can be made – for example, if your financial year end is 31st July 2021, you still have time to submit a claim for the year ending 31st July 2019.
There is no additional record keeping requirement specifically for the purposes of claiming R&D relief.
How long does the process take? It can take a few weeks to produce the claim documents, but once your CT600 has been submitted, HMRC aims to pay 95% of all claims within 28 days.
What other NCB members say NCB Legislation Director, John Mettrick, worked with RandDTax, and commented,
‘Butchers constantly listen to their customers, and from this exercise ideas on new trends in meat and new products evolve. This process takes a lot of time and effort and is something many butchers do naturally, but few seem to realise that this work can help offset corporation tax bills. I would strongly recommend members to contact the office to be put in touch with research and development tax relief specialists, such as RandDTax, who have a proven history of helping food businesses, including butchers.’
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