Research and Development farm tax credit to expand criteria in April 2023

What is research and development in business? 

All farmers and growers had to begin their journey to get to where they are. The way farming has evolved over the years, and the ongoing challenges, has meant many need to adapt how they operate. Research and development in business is used to identify if there is a need for a new product or process, whether you need to improve an existing one, and to see if there is market viability for the new solution. 

With an investment into the future of your farm, you will be taking on a certain amount of risk, which can be very costly. Investing thousands, if not millions on R&D, does stop many from investing. Which is why HMRC research and development tax relief is available.  

What is research and development farm tax credit? 

The HMRC offer a scheme called Research and Development tax credits. Referred to as R&D, research and development farm tax credits are designed to encourage more innovation; with an emphasis on technology. Research and development tax relief lowers your tax burden. 

The wording may seem like it is specifically for developments in science and technology, but the scheme is not sector specific, a lot of businesses take advantage of the HMRC research and development tax credits every year, including agricultural companies.  

What are the 5 cost categories and are they changing? 

The categories are the same, but what each one covers and allows is changing. The changes are significant, and could affect how your business operates. 

Software costs 

Farm management software is becoming more necessary with everything moving to digital. The investment in setting up software can be claimed back through R&D farm tax credits, as you are investing in a more efficient way to run your business.  

External worker expenditure 

relating to people hired as agency workers. The classification of what is deemed acceptable as an externally provided worker, is outlined in the CIRD84100. 

Subcontractor costs 

Similar to the external worker expenditure, this is related to subcontractor activities. You can find out more about what is covered by this cost category under CIRD84200. 

Staffing costs 

Staffing costs are related to payroll, hiring, and other staffing costs accrued. Farm tax credits can be used on staffing costs but you need to double check what you can actually claim for. 

Consumables 

The materials you need to use in order to perform research and development. Any raw materials used are an expense that can be claimed through the HMRC research and development Farm tax credit scheme. 

How is the research and development tax credit changing? 

The main changes to R&D tax credits are in relation to the rate changes, and what the cost categories cover. The two categories businesses will fall under are the SME scheme, and the RDEC scheme. The scheme you would use is dependent on the size of your company. 

Many farms will fall under the RDEC, Research and Development Expenditure Credit, as they are larger businesses. The SME scheme, is for Small and Medium sized Enterprises. The following changes will take effect as of 1 April 2023. 

Removal of overseas R&D 

HMRC have decided that they will no longer accept claims regarding overseas R&D, which shouldn’t affect your Farm tax credit. The incentive is to bring more R&D activity to the UK. The government is making a huge push towards increasing jobs in the UK, for UK citizens. In part due to Brexit, in part due to other changes, they want to lessen dependency on overseas labour.  

Quantum calculations and mathematics are now eligible 

Although you may not think this is applicable, it actually could be. Mathematics was not included as a valid claim, but from April, it will be. Big data and data analysis are crucial when predicting crop yields, which is where mathematics becomes important.  

Cloud costs are allowed 

Cloud-based technology is going to be how most businesses will be run in future. The scope for cloud-based computing and development, means many businesses will be able to take advantage of the scheme, especially with the update to PHP 8.0.  

Claims will only be allowed via online 

Most would agree it was going to happen; HMRC’s updates to the R&D scheme will make claims online only. The government is moving almost all its services online. As of the time of writing, the process has not been confirmed, but this what is known: 

• The removal of alternate methods to submitting a claim; you won’t be able to submit via post, or email. You will have to use the online portal, and submit your research and development tax credit claim alongside your corporation tax return. 

• You will need to include a summary of the cost categories used, and a brief description of the R&D activities that were undertaken.  
• The claim needs to be signed by a names senior officer, like a director.  
• If you used an advisor, you need to name all of them in the claim. 
• HMRC will require prior notice, within 6 months of the end of the financial period, to submitting a claim.  

SME rate changes 

Arguably the most important change, is how the rates are changing. The rates are being reduced due to the alleged amount of fraudulent activity. 

• Enhanced deduction rate will be 86%, down from 130%. 
• Surrender rates will be 10%, down from 14.5%. Effectively bringing loss-making companies maximum tax benefit down to 18.6% from 33%. 

RDEC rate changes 

Larger companies who qualify for the RDEC scheme will see increases to their rates. The rate will be 20% from April, which is up 7%, and the overall tax benefit will increase from 10.54% to 16.2%. 

What changes to the cost categories are relevant to your business? 

Increasing what is covered under technology and software development is great for businesses. Even if you don’t work in technology, you can take advantage of implementing the benefits. The agriculture and horticulture sectors could benefit from so much existing technology. 

Augmented reality 

Due to certain factors, some businesses closed offices and chose to go completely remote. Augmented reality, AR, is simply using technology to enhance the physical space around you. LiveFarmer allows you to map out every field, and creates the most efficient way to sow, so you can maximise your profits.  

Robotics 

Automation is the future, and will replace many jobs going forward. With current labour concerns across the industry, robots will become a necessity. The agriculture industry is already using robots to automate parts of the harvest lifecycle. Packhouses are using sorting and weighing robots, drones are being used for crop walks, and even driverless tractors are taking over the sowing of fields.  

Artificial Intelligence and Machine Learning 

AI is having some of the heaviest investment, with software engineering companies building more and more advanced systems. AI and ML take your data, calculate what you need to fulfil an order, automatically allocates the yield, and can set the rest for overages. When linked to software like FruPro, it will also automatically set that overage for sale. Without any additional input from you. 

Cloud computing 

Every business is using some form of external cloud-based system; cloud just refers to technology you access from somewhere else in the world. In liveFarmer, this is the whole ecosystem. You can access everything from an iPad, iPhone, PC, or Android device.  

IoT 

The Internet of Things are devices that connect via a network and communicate with each other. One of the most interesting uses for IoT in agriculture, is the use of soil health sensors that automatically update the farm management software with data, so you can make better decisions as to when to add fertiliser and other chemicals. This can dramatically reduce labour and chemical costs. 

What other changes could affect your R&D farm tax credit claims? 

On top of the R&D changes, there is the increase in corporation tax. Every company recording profits will be affected, and will have some effects on how their research and development claims work. For smaller companies making less than £50k profits, they will continue to pay the 19% corporation tax rate.

What if you are over the £50k threshold?

Over the £50k threshold, businesses will enter the new 25% corporation tax bracket, although, they will be able to claim some of that back through marginal rate relief. This means the SME scheme will allow for a higher relief rate, but the RDEC scheme will see the overall value decrease. 

LiveFarmer can be part of your research and Development 

With an investment into software that streamlines your whole operation, you can offset the cost with an R&D farm tax credit claim. Want to find out how? Get in contact with us to find out more!