Experts provide insight for how companies in the forestry sector can use R&D tax credits to begin taking advantage of their innovation.
Are forestry businesses in the UK missing out on R&D tax credits?
With HMRC data revealing that the UK agriculture, forestry and fishing sectors made up just over 1% of UK R&D tax credit claims, those operating in the industry are encouraged to consider whether they might be eligible. For those that did make a claim from the sector as a whole, the average value of a claim was just over £48,000 in 2018-19.
What is R&D tax credit for forestry?
In the UK companies are able to claim tax relief for their R&D activity. The schemes, for SMEs and larger companies, are both administered by HMRC. Typically SMEs get back up to 33% of the amount they’ve spent on qualifying R&D. Large companies could get more than 10% of their R&D spending refunded.
The misconception is that it’s an innovation tax credit only suited to those in white lab coats and in digital sectors, but in reality it’s applicable to any business that has developed and used innovation in its process. Here
HMRC defines innovation in terms of overcoming scientific or technological uncertainty, something that couldn’t be worked out easily by a professional in the field. It can even be applied to for tax savings on innovation that has failed.
There are five broad categories which can classify forestry R&D claims; staff costs, subcontractors, externally provided works (EPWs), software and consumables like heat, light and power.
Dominic Bartholdi, Head of Business Development at R&D tax specialists GovGrant, provides expert insight into R&D in the forestry sector:
Why the forestry and wider agricultural sector is missing out on savings
We find that companies from all sectors have the potential to claim UK R&D tax relief. For tax purposes the definition of R&D is so much broader than you may think.
We know that forestry businesses of all kinds are now benefiting from refinement through technology. R&D tax claims can come from process improvements, production improvement and scalability and quality control. And we see this happening in all aspects of agriculture, including:
- Implementation of scientific advancements, including hydrology, biology and geology
- Disease prevention
- Management of forestland, including use of high-tech surveying and analysis tools
- Post-harvest advancements to process raw materials into products
- Hydrological and biological research
Is it known that forestry workers are not claiming where they could be?
Even when businesses are already claiming R&D tax credits, they might not have fully explored the potential of that claim. For example, we had an agricultural client who hadn’t considered a key project as R&D
In this case, day-to-day work was carried out to monitor the crops under specific trial conditions and collect data, and that was time spent on R&D. It was similar with indirect personnel who were working to enable that R&D.
How much innovation is there in the forestry sector?
So much activity that could be considered good forest management practice would qualify as R&D – for instance, gaining insight into growth conditions, discovering novel ways to improve yield or ways to save money on the management of forestland.
In agriculture, forestry, and fishing there are so many examples where we’ve seen specific innovations which were all qualifying expenditure for R&D tax credits:
- Tracking pests and response to different pest control processes
- Investigating new ways to use waste materials in a novel bioreactor as a means to reduce energy costs
- How different varieties of tree grow and respond in the same/different growth conditions
- Looking at why pollination is low over the past few years, tracking bee populations and activity
What are the triggers that could suggest that a forestry worker may have R&D that qualifies for a tax credit claim?
If there’s a moment where something unexpected has impacted your land management whether through disease, climate change, pollution or any other factor, then any time spent looking into why this may be the case could be qualifying R&D.
Any machinery you’ve tweaked for working in a woodland or park, to improve a particular function or purpose specific to its situation, could be R&D.
Anything you’ve tried as a way to save money or drive efficiency – whether it worked or not. Either way, it could be qualifying activity.
What advice would GovGrant give to forestry workers in the agriculture industry who are unsure whether they should apply?
Our one and only goal is to get you the maximum benefit you deserve for innovating. Initially we will assess the viability from a financial point of view to make sure it’s worth making a claim, by reviewing your management accounts and tax computations. We don’t want to waste your time so we’ll give you realistic feedback from the start.
If there is a good chance of making a claim, we then arrange a meeting with each relevant department or site. This is when our specialists figure out what is qualifying R&D. We never ask the question ‘Tell me about your R&D’? We have a detailed conversation to understand your whole business and the projects you are undertaking.
When you meet our specialist, it will feel like you’re talking to a colleague rather than your advisor.
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