• Date

    11 Nov 2020
  • Category

    R&D Tax Incentives

R&D – The golden bullet or poisoned chalice for Farmers?

The agricultural industry has always embraced technology and change. Speed the plough says it all!

R&D Tax Relief is an excellent route to cash for businesses that are innovating and taking financial risk to make improvements in their industry and to their processes.  Agriculture is a prime area for claims, and we see plenty of opportunity for farmers where they have qualifying activity. Such as, but not exclusively these could include:

  • Development of fertilisers, and improvements to existing formulations
  • Improvements to processes such as product safety, disease and waste reduction
  • Development of new techniques to grow crops and improve quality
  • Development of new agricultural machinery, GPS and Drone technologies
  • Systems automation and use of Artificial Intelligence to improve efficiencies
  • Improvements in pest control
  • Enhancement and adaptation of various growing conditions
  • Development of processes to improve product safety
  • Work carried out to reduce water pollution, environmental advances, sustainability and biodiversity

Inevitably, where there is significant cash and tax relief available, there is also the opportunity for exploitation by predators in the market.  There are many advisers in the marketplace who are professional, reputable and work closely with their clients and with HMRC to ensure legitimate claims are made.  Sadly, there are also a number of businesses out there, masquerading as professional advisers, who will encourage Farmers to make a claim, even where no qualifying R&D exists.

HMRC are taking more interest in identifying non-qualifying claims and will take severe action against any claimant who makes such an application. The recent First Tier Tribunal case “HMRC vs Hadee Engineering Co Ltd” highlights the stance taken against claimants that cannot substantiate qualifying activity nor maintain records to support their activity.  It serves as a cold tonic to see what happens should a claim not turn out to be in line with the BIS Guidelines.

Currently the Farming community is being subjected to a raft of cold callers from so called R&D specialists who purport that just from being active in agriculture will result in a successful R&D claim and a route to cash. In most cases this is not true. This is nothing more than mis selling and in fact could put the very existence of a business in jeopardy should HMRC successfully enquire and levy severe penalties or indeed undertake criminal prosecutions. Furthermore, we are aware of instances where some specialist firms are unable or unwilling to cooperate when HMRC have asked questions surrounding the compliance.

To qualify for relief the Farmer must be undertaking an advance in science or technology through the resolution of a technological or scientific uncertainty. Advancement of one’s own knowledge is not necessarily a qualifying activity. There is no doubt that the agricultural community do undertake qualifying  activity and it is essential that the tax relief is given to the right Farmers and not just the  general Farming community as some specialists would have us believe.

Azets has welcomed HMRC’s stance, that in their opinion, R&D consultancy activity falls under the guidance given by Professional Conduct in Relation to Taxation (PCRT). This sets out the minimum standards of behaviour that all members must follow in their tax work.  These are integrity, objectivity, professional competence, confidentiality and professional behaviour. Many specialist firms are disregarding this code of conduct or are unaware of them.

It is vitally important that any Farmer making a claim by using a specialist consultant is aware of the qualifying activity rules, they are certain they meet them and that they have evidence to support their claim.

Head of Azets R&D, Tim Croft says, “It is crucial that the Farming community get the support they deserve from HMRC to reward them for their innovation. Farming is at the heart of what the legislation is about, however we are seeing significant activity by unscrupulous boutique firms who see a way to make a fast buck. This is not only unfair to those who do qualify but could also in some cases prove illegal. I would ask any farming business to be very wary when considering if they qualify. If in doubt, please refer back to someone you can trust and certainly who follows the PCRT. It might seem “money for nothing” but the potential outcome of being under scrutiny for misfiling could be catastrophic and ultimately put the business in severe jeopardy”.

Do come and talk to us at Azets.  We know your business and have expertise in agriculture. The R&D Tax Credit relief is generous and there to help innovative business.  But also beware approaches that you receive, whether by mailshot, cold call or through “ a friend of a friend”.   If something sounds too good to be true it probably is…………

 

 

About the author

Tim Croft Photo

Tim Croft

Regional Managing Partner Hertford
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