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An appetising boost for the food and drink sector

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R&D tax credits are an appetising boost for the food and drink sector

R&D tax credits are often regarded as being relevant only to technical industries such as science and engineering. Not so. Thankfully this perception is now changing as many other industries realise that elements of their work sit under the research and development umbrella and can therefore be subject to tax relief.

Food and drink is one such sector where there has been an increase in R&D claims. According to the Food and Drink Federation, the industry contributes £28.8bn to the economy and is the biggest manufacturing sector in the country, larger than automotive & aerospace combined. Not small beer then! R&D is prevalent throughout the industry, and businesses are finally understanding that there is help available to facilitate growth.

What is driving R&D in the food and drink sector?

At RandDTax we have identified two areas that are instrumental in driving R&D in the food and drink sector:

Free-from products for allergens and diet preferences

In the food and drink industry, with allergens and nutritional focus, there has been an increase in claims for R&D tax credits to help food and drink businesses meet client and consumer demand.

Whether it’s sugar-free, fat-free, gluten-free, nut-free, dairy-free; businesses within the food sector must now accommodate dietary requirements and preferences to be relevant and competitive. RandDTax recently helped a company that wanted to replicate exiting products using gluten-free ingredients. They were able to claim tax relief on the time and money spent developing the free-from product.

Advances in diagnosing dietary intolerances and trends in life choices such as veganism or a low-salt/low-sugar diet  mean that the production of food now requires extensive research and development which is costly and time-consuming. Soft drink companies have reduced sugars & calories from their products by 18% since 2012; this comes at a cost which companies are loathed to pass on to the consumer.

Upscale in production

Many food and drink companies are having to upscale their production to accommodate different ingredients, recipes, processes and packaging, all of which need to be developed, tested and improved.

We recently worked with a processing company that wanted to automate production because the staff were manually sorting and grading products. They invested in software to control the new, robotic machinery for which they were able to claim tax relief.

There are anticipated advances that will upscale production in brewing and distilling which will be eligible for tax relief such as new bottling or brewing equipment, improved hopping techniques, improved yeast strains or fermentation processes, new or improved can and bottle designs, improved keg filling techniques, water recycling or waste management.

What else can you claim R&D tax relief for in the food and drink industry?

Here are some other examples where claims can be made:

  • Specific nutritional requirements such as calorie, sugar or salt reduction, or adding nutritional items such as fibre, protein and vitamins
  • Improvements to shelf life, technical processes and efficiencies
  • Technological advance to allow a reduction in cost or price
  • Packaging where the type and design of the packaging impacts on the product, or there are significant challenges in how to package certain products
  • New ingredients such as additives and flavourings and research into how to incorporate them
  • Living food and drinks dependent on growing bacteria such as beer, wine and cheese, including where the product is still developing and maturing while on the shelves.

If you’re in the food and drink sector and would like to know if you could be claiming, get in touch for a free consultation.

 

 

R&D Tax Relief Claims May Not Be All They Seem…

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At RandDTax we are dealing with an increasing number of clients who have submitted R&D claims, been paid the tax relief and then told by HMRC - maybe years later - that in fact, their claim is invalid. We’re asked to intervene, review the claim and try to salvage it. Unfortunately, this isn’t always possible, and companies are having to pay back money they’ve been awarded because the original claim didn’t comply with the rules.

The money they received is spent, where do they go now? Many companies don’t survive that size of financial hit.

Having an R&D professional in place to guide a company through the minefield of claiming can avoid all the unnecessary time, stress and financial pressure of an incorrect claim. Of course, this is where we at RandD Tax come in, but for anyone considering making a claim, there are a few things worth knowing before you start.

Why are so many invalid R&D claims being incorrectly awarded?

  • Only 5% of submitted claims are checked in detail! Shocking isn’t it? This hard-to-believe statistic is due to the large volume of claims being submitted and the limited resources available to the R&D department within HMRC. This has led to complacency and (in some cases) abuse of the system, with companies submitting incorrect or incomplete claims.

  • 50% of claims have no supporting documentation Companies rarely understand the full extent of what is required to support a claim. Without the correct supporting documentation, a claim is invalid. There must be a detailed technical justification and a summary of costs attached to every claim.

  • Companies that file their own claims often don’t understand the rules Understanding the rules and sticking to them when making a claim is paramount. A specialist will fully explain the rules and check that all the costs are correct.

  • The rules and guidelines change slightly each year Companies don’t have the inhouse expertise to keep track of the most up to date criteria and rules. It’s a confusing area as it is, and this really doesn’t help!

  • The R&D scheme is complex and detailed Companies are cutting corners by receiving advice from less qualified sources As with any professional service, advising on R&D tax is a specialism that should be left to the experts. Is an accountant, for example, best placed to identify what is a technological advance? Would they be able to defend their claim(s) to an HMRC inspector and explain where the advance in science or technology has occurred?

How secure is your R&D tax claim?

It’s extremely important that all R&D tax claims are accurate and include full supporting documentation. At RandDTax we provide a complete R&D service and our Compliance Team checks every claim before it is submitted. Should there ever be any questions raised or clarifications necessary, we will liaise directly with HMRC on your behalf and (in the unlikely event of a full investigation) we will be there with you to defend your claim. This not only gives our clients peace of mind but protects them now and in the future.

Here’s why there are companies like ours that specialise in R&D tax relief claims:

  • Getting a claim wrong is expensive. Getting it right before you submit is much easier than unpicking and defending an incorrect claim if HMRC want to investigate. Defending an R&D claim could cost many thousands of pounds and that doesn’t even account for your own time and resources.

  • HMRC can go back 6 years during an investigation and can even extend beyond that period if they suspect previous claims may have been fraudulent or deliberately misleading.  

  • Claims are never approved by HMRC, they are simply processed, so receiving a payment does not eliminate the likelihood of an investigation.

  • HMRC are clamping down. More and more claims are being checked and they will demand repayment (and can impose significant fines) where R&D tax relief has been claimed incorrectly.

Compliance is key

Every aspect of your R&D claim must comply with the latest HMRC guidelines and the only way of making sure your claim is compliant is by using an experienced R&D company.

You have to remember that a processed claim is not an approved claim and if HMRC discover benefit has been claimed in error, they will expect you to repay the full amount. Many companies carry on in ignorant bliss, focusing on the benefit being received year after year without realising that their claims are incorrect or incomplete and an investigation is waiting just around the corner.

Who processes your R&D claims? Are they qualified to provide the information and guidance you need? Do they have the relevant specialist experience? If not, you are compromising the security of your claim.

Get in touch

If you’d like more information, or you’ve already received a letter from HMRC regarding a badly prepared claim, get in touch to find out how RandDTax can help you to minimise the damage, before it's too late.

 

 

DON'T BELIEVE THE HYPE

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Over the last few days I have heard two (independent) stories about approaches being made by a supposedly reputable R&D company in the NW.

The first was a cold call telling an insurance company that they could expect £25k by making a claim. This was without any discussion or assessment about the company’s activity, just a blanket promise that the claim would go through.

The second was to a business coach who was promised £12k because they had to undertake “research” for the service they provided to their clients – stating that they had made similar claims in the past that had been approved.

NEITHER of these companies are involved in any work that would qualify under the scheme and this R&D firm has omitted some really important facts when talking to these businesses.

1. To qualify for relief a business must be attempting to make an advance using science or technology. “Research” must be related to the resolution of a technological issue, so developing concepts, ideas or writing a book does not qualify.

2. An R&D claim is never “approved” by HMRC. Even after a claim is processed, HMRC can launch an investigation, impose fines or demand full repayment at any point over the next seven years.

3. Just because one of your competitors has made a claim it is no indication that you are eligible for relief yourself. You must be able to establish that you have made a technological advance and be able to justify your claim in the event of an HMRC enquiry.

It was by chance that I know the people that run these businesses and it was lucky that they could call me to clarify the position. If they had gone ahead the likelihood is that they would have been forced to repay any benefit received, which would have had profound consequences for both companies.

Everyone wants to get the most out of making an R&D claim but ask yourself a few questions before you are lured by the promise of a big pay-out:

- Are you talking to a specialist or a sales person?

- Have they explained the rules to you and do you understand what qualifies under the scheme?

- Has a consultant scoped your R&D work and are you confident they have identified legitimate qualifying activity?

- Will the consultant help you prepare the correct supporting documentation including a detailed technical narrative?

- If, at some point in the future, HMRC want to launch an enquiry into your claim, will the R&D consultancy firm be there to support you and help you defend it?

I am confident that the vast majority of R&D firms are diligent and adhere to the rules but if there is any doubt in your mind you should double-check with an expert.

As always, if it sounds too good to be true, it probably is!

Using specialists to claim your R&D

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I’ve heard of a few companies recently that are offering an R&D service for fixed fees or very small percentages and although you should never be overpaying, there’s a few questions to ask before you sign up.

1. Are they a reputable company and do the company have a track record of successful claims?

2. Could they be putting your business at risk by giving you incorrect advice?

3. Do they fully understand the scheme and are they going to help you understand the rules?

4. Will they help you maximise your claim by including all allowable costs?

5. Are they going to help you support your R&D claim by preparing a detailed technical justification in the format required by HMRC?

6. If HMRC decide to investigate your claim, are you going to be supported through that process? If there is any doubt in your mind it is always a good idea to talk to a specialist. The consultations are free and the advice you receive will equip you to make the best decision for your business.

As with everything – if it sounds too good to be true, it probably is! 

Maximising your R&D Claim

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Maximising your R&D Claim:

Don’t be put off if your business is loss making or the project you started was ultimately unsuccessful - your company could still benefit from the R&D scheme.

The R&D scheme is designed to reward companies that have invested time, money or resources and once it’s established that you have a qualifying project, it is important to make sure that all the costs are included.

Normally your biggest expense will be from the time you and your team have spent working on an R&D project. As well as a percentage of any salary costs you can include pension contributions and employers NIC in your claim but, unfortunately, dividends can't be included.

Any third party expenses relating to your project can be included, so if you have subcontracted any work (e.g. software development, analysis, testing etc.) you can claim 65% of these costs in your submission.

Expenditure on materials or consumables that are used up or transformed during the R&D process can be added, including any prototypes or samples AND you can also include any direct utility costs. Also, if you have purchased any items that directly relate to the R&D aspect of your project – including certain types of software – you can include these in your claim to maximise the benefit you will receive.

Once you have calculated all of these costs you can then apply an uplift of 30%, which the government allow as an additional incentive. This means that for every £100k of expenditure, you can add £30k to your total claim value!

EVERY business wants to get the most out of an R&D claim but it is important to remember that any cost you include needs to stand up to scrutiny in the event of an enquiry from HMRC.

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