R&D Tax Credits for Food and Drink Manufacturers
The food and beverage industry is worth hundreds of millions of pounds a year and is the largest manufacturing sector in the UK. There is substantial pressure on companies to offer food and drink that costs less, is healthier, longer-lasting and more ethically produced than ever before. This creates huge scope for innovation and for businesses to conduct cutting-edge research and development (R&D).
However, there’s only a small percentage of food and drink businesses that are aware of, or are taking advantage of receiving tax relief based on the innovative R&D they have initiated. Many businesses mistakenly think such financial incentives are only applicable to technology and pharmaceutical companies. In reality, the food and drink sector if full of innovation and a variety of companies could benefit from the government scheme. It’s lucky there’s a vast R&D budget to match it.
Key drivers of R&D in the food and drink industry
There are some crucial parts of the industry that drive and affect the need for innovation. With constantly evolving and unrelenting market demands and attitudes, companies are continuously presented with new opportunities to advance and respond. If a company is overcoming scientific or technological uncertainty by seeking advancement for their food and drink business, they could be performing eligible R&D.
Consumers are driving and influencing R&D in the food and beverage industry. It’s no secret that the population is more health conscious and concerned about their personal impact on the environment than ever. This has created a real-step change in how consumers are acting. In response, food and beverage businesses are competing to develop healthier, cheaper and more ethically sourced products that claim to help people live better.
Supermarkets are stacking shelves high in free-from and flexitarian products and chefs are experimenting with unique ‘Instagrammable’ vegan twists to traditional menus. In doing so, they are keeping on-trend and providing consumers with exactly what they want. R&D is also evident in Quorn’s £7m investment into meat-free alternatives, to step up its innovation and keep up with rivals to capitalise on the back of the vegan hype.
Consumer trends are difficult to keep up with and hard for businesses to ignore. While designing products to respond to customer trends can be very costly, it can also be very rewarding.
Ethical considerations surrounding food and drink production has become a rising trend in recent years, driving many R&D projects in the food supply chain. Consumers increasingly demand a confidence that the products they purchase are ethically and sustainably sourced. It’s a crucial topic where the genuine concern for the welfare and sustainability of goods has never been so important, and such issues are highlighted across news and social media daily.
The traceability and welfare of animals from where they were reared, to how they were slaughtered is all information consumers want to know. As far as R&D is concerned, businesses that are finding ways to provide information for consumers, like developing bespoke software solutions to track a product’s origin, are prime examples of R&D.
Legal and regulatory changes
Despite the fact legal and regulatory changes are not always ideal for food and drink businesses, they are compulsory and impossible to avoid. This applies when the government makes a definitive demand for a regulation to be met. The changes are often high-profile, informed decisions that alter a certain standard within the industry. The 2016 sugar tax unveiled by the chancellor at the time, George Osborne, sent R&D projects into overdrive. Companies were pushed to overcome the uncertainty of how they could reformulate their products to meet the new sugar regulations, while also keeping their products tasty and appealing. Innovations like this are great examples of what counts as an eligible R&D project.
Following the Brexit vote, Britain’s relationship with the EU will have huge implications on how the food and drink sector positions itself in relation to the single market. With trade at the heart of growth opportunity and success in the sector, Brexit could have important consequences for manufacturers and businesses in this industry. Unfortunately, the UK isn’t self-sufficient in supplying and producing particular products due to its size and climate.
The most concerning challenges are directed at importing fruit, vegetables, tea and coffee and companies will be faced to overcome many challenges due to Brexit’s threats to supply chains. Businesses need to be aware of these potential scenarios and should start to think about putting action in place to respond appropriately. This provides potential future scope for various rewarding R&D projects in the food and drink industry.
Commercial factors and process changes
Other R&D opportunities could involve innovating fresh food ingredients to improve a product’s shelf-life, or designing products to make them as affordable to consumers whilst remaining profitable at the same time. Although this is more relevant to manufacturers operating on a larger scale, many projects in any sized company have process changes going on behind the scenes that requires R&D. This could involve seeking to increase output, improve standards or introduce new machinery, all of which are likely to entail extensive testing to ensure that the end product remains consistent.
What kind of projects are eligible for R&D tax credits?
As seen above, innovative projects in the food and drink industry are many and varied. A company could be experimenting with lower salt content to benefit the health of its customers, developing the newest recipe for the most delicious vegan cheese to top their burgers, or improving take-away packaging to make it more eco-friendly.
It doesn’t matter what the original driver is, what a company produces or provides, or whether the R&D was even successful. If a business can identify areas of attempting to overcome uncertainty or achieving advancement through putting in time, resource and money into comprehensive R&D, there is potential it could be entitled to tax relief.
Claiming food and drink R&D tax credits
With all of this in mind, it’s important to note any R&D will need to have backing evidence and, like many other tax-related issues, it’s vital to get your application right. All the corresponding financial calculations regarding the R&D are collaborated with specific examples and of how your company was able to (or tried to) overcome a specific technological or scientific uncertainty to put forward your case. Providing an unclear demonstration or incorrect calculation could be detrimental to your claim and could get you in trouble with HMRC.
Seeking expert advice from our knowledgeable tax specialists at the R&D Taxshop could make the overall process less time-consuming and more straightforward in getting your claim approved.