Scottish Food and Drink Firms Missing Out on R&D Tax Support

Johnston Carmichael, Scotland’s largest firm of independent chartered accountants, says the Scottish food and drink sector is missing out on hundreds of thousands of pounds of research and development (R&D) tax relief.

Breaks are currently available to companies which invest at least £10,000 per annum on qualifying R&D activities in the form of tax relief and a cash tax credit for any loss-making firms.

The level of support is dependent on the size of company with SMEs qualifying for 200% relief on all R&D while larger businesses can claim for 130%.

The Government announced further proposals to expand the level of support in June, but even under the existing rules, Johnston Carmichael has handled over 100 R&D claims for its clients across Scotland, generating more than £23m in tax relief and credits.

However, the firm believes that many Scottish food and drink companies are still not benefiting from the incentives with most unaware that existing research they are involved in may qualify as R&D.

Johnston Carmichael's head of food and drink, Adam Hardie, said: "While R&D relief is currently a very generous tax incentive, we are seeing only a small fraction of Scottish food and drink companies applying for it.

"One of the problems is that many businesses are not identifying what actually qualifies for R&D.

"We’ve also seen a perception within the sector that it is not financially viable to make a claim but this is not necessarily the case and, as a result, they are losing tax relief in key areas such as staff costs, consumable and transformable items.

"Many companies assume that R&D tax reliefs will only be available if your business has staff in white coats working away in laboratories full of high-tech equipment. This is a mistaken assumption.

"The food and drink sector has many innovative companies and we have successfully claimed R&D reliefs for clients in this sector.

"Our most recent success was to claim for an early-stage company which had developed a new method of producing vegetable and fruit crisps. While this may not initially look like R&D activity, working with the client we identified that certain parts of the new innovative production process did qualify for relief.

"We identified qualifying costs of just over £116,000, which will allow the company to save just over £40,000 off its next tax bill.

"The relatively low number of R&D claims represents an opportunity lost for a very important sector, worth around £12bn each year to the Scottish economy. Failing to optimise these tax breaks can, in some cases, be the determining factor between a firm being able to go global or be forced out of business.

"At a time when Scotland’s food and drink sector needs to maximise every economic advantage at its disposal, we would urge firms to review existing operations and consider if they may be able to claim for R&D relief."