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R&D Tax Credits – Farming and Agriculture

  • April 2022
  • 5 minutes

Many farmers and businesses entering the agriculture sector unknowingly engage in activities that could qualify for research and development tax credits. Taking the time to step back and evaluate the activities carried out can result in a significant cash flow benefit and allow the company to excel even more in its core activities.

The Agricultural sector contains an abundance of activity qualifying for R&D tax relief because of the ‘can do’ attitude of its business leaders, the hands-on business owner.  While financial margins are becoming smaller, Farmers strive to enhance the efficiency of their production process.  It is these activities which often qualify for R&D Tax Farming.

One key point to acknowledge is that R&D tax relief is only available to limited companies.  Many farming businesses are run as partnerships and so cannot qualify, but this does not mean the end. This is a further planning point to bring to the attention of innovative farmers, wishing to make the most of this generous government incentive (e.g., incorporation may be worth considering).

taxqube Where does R&D fit into Agri-tech?

Climate change, increased population, extreme weather events, and soil erosion are just a few of the real-world issues affecting farmers in the UK and around the world. R&D in the agri-tech sector is thus applicable to any technological innovation that aids advancement in:

  • Feeding a growing global population
  • Relieving pressure on resources & natural resources
  • Proofing against environmental threats and resilience including disease and disaster
  • Preventing waste in harvest and storage
  • Creating better resource management
  • Advancing Biotechnology
  • Finding better methods of soil management & smart irrigation

In the United Kingdom, Agri-Tech companies can take advantage of HMRC’s R&D tax credit incentives to claim money to further invest in their research. The HMRC test for genuine R&D is whether a ‘appreciable improvement’ in addressing a ‘scientific or technological uncertainty’ has been discovered.

The Agri-Tech sector is therefore a hotbed for R&D. Path-breaking new technologies are being applied to solve problems and make farming processes appreciably better, often by improving efficiency with greater yields for less input. There are many companies helping to solve global problems that could be benefiting from R&D tax relief.

taxqube Types of Qualifying Projects

Qualifying for R&D tax relief spans the full sector, including development of, for example:

  • Fertilizers
  • Pest control
  • Adaption of atmospheric conditions – e.g. optimization of silage wrap or chicken coops
  • Development of new machinery and components or adaption of existing
  • Methodologies to maximise yield
  • Processes to reduce waste and/or reuse waste products – e.g. biofuels
  • Health products to assist livestock production and reproduction – e.g. feed supplements

Agriculture is facing pressure from all sides. Farmers and agri-tech businesses need to increase yields and feed growing populations. At the same time, climate change has worsened droughts, changed weather patterns and soil ecology.

Agriculture must face these issues all while becoming more sustainable. The answer lies in innovation.

taxqube What is agri-tech?

The Agri-Tech sector is where technology is used to solve problems in agriculture, farming, food production, and distribution. Scientists, technologists, and engineers are collaborating with a wide range of start-ups and established businesses to focus on agricultural innovation.

Finally, Agri-Tech is assisting farming in becoming more efficient, environmentally friendly, labour-intensive, and high-yielding.

In the 1960s and 70s, the ‘Green Revolution’ saw farms become businesses. Farmers were now looking carefully at ROI, examining the cost of their inputs (seed, water, and nutrients) against the money they were generating from their harvests.

Today the demands on farmers are ever-increasing: resources are stretched and the input costs have generally gone up. These challenges have a very real economic impact – with farms struggling to operate as profitable businesses. So where do we go from here?

Agri-Tech is on the rise, with new technologies being developed to help farmers increase productivity while lowering costs. Rather than developing more agricultural land, the emphasis is on increasing productivity through technology and data. As a result, the UK government is investing £160 million in its Agri-Tech strategy in order to position the UK firmly at the forefront of the Agri-Tech revolution.

taxqube Examples of R&D in agri-tech

  • Smart land monitoring-Remote monitoring of various aspects of the farming process can provide data that can be used to improve the farming process and save money. This can range from the amount of fertiliser left in a tank to soil and water management. It not only eliminates the need for a person to do this manually, but it also provides data and, as a result, insight into usage.
  • Satellite agriculture monitoring- One application of big data is in Precision Agriculture or satellite farming. By using satellite technology alongside other data-gathering technologies to observe and record the performance of crops across different fields, farmers have information on how to best manage their fields. According to NESTA, around 60% of UK farmers already use some sort of precision agriculture on their farms to optimise returns on their inputs.

It doesn’t stop there either – big data, collected from all of these sources, will feed back into many of the Agri-Tech technologies being developed, improving their efficiency further. Leading on from this, the Agri Internet of Things refers to how all of these existing and new technologies will communicate with each other and utilise the power of big data. High speed and robust broadband is essential for the Internet of Things, but is sadly not available in all regions.

The Yield is a start-up that is making a big impact with the Internet of Things. They use IoT technology to help improve yields and profitability by collecting localised data through a network of wireless sensors. The raw data is then transformed into useful information by an analytics programme.

It is unsurprising that a number of start-ups are entering the Agri-Tech market, with a focus on big data analytics, crowdsourced data, and real-time monitoring. The challenge they face is making the data meaningful to farmers so that they can better manage their fields to maximise profits while minimising environmental impact. It’s important to point out that when it comes to big data, there are some major issues for farmers around who owns the data and about sharing any information with their competitors.

taxqube Drones and robotics in farming

Developments in robotics, drones and AI all have the potential to solve some of the big issues facing agriculture, in particular by improving productivity and helping reduce the need for human labour and the associated costs.

taxqube Smart tractors and farming

Tractors can already drive themselves across fields using GPS signals. Smart or intelligent tractors are equipped with various sensors and technology that means they can be directed using big data and drone imagery around the farm. They can be programmed to take the shortest routes in order to reduce fuel and cut down on damage to crops and soil.

taxqube R&D Tax Farming, The Benefit

Taking the time to see the innovation in your daily activities, seeing these as projects not chores, on average results in a 25% cash saving on the projects.

Only certain costs and projects qualify.  Taking time to ensure your projects and finances are set up correctly is key.  Allowable costs include:

  • Staff, paid via your payroll.
  • Materials, probably used up in the trials, prototyping and testing.
  • Subcontractors, maybe there is the need to bringing in specialists to undertake part of your project.

Once the accounts are ready to submit to HMRC, the company can formally make its claim for R&D Tax Relief.  If your company is eligible to receive R&D Tax Incentive Agriculture, a cash amount can be obtained.  Most noteworthy, the company will receive a reduction in its corporation tax bill, a corporation tax refund or cash for the surrender of losses.

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