Like many other businesses in the food and drink industry, alcohol manufacturers may have cause to benefit from HMRC’s R&D tax relief incentive.
This article explains everything you need to know…
What is R&D tax relief?
R&D tax relief is a statutory tax relief scheme implemented by HMRC. Businesses that can prove that they have spent money on certain ‘qualifying costs’ in the course of research and development can obtain a reduction on their annual corporation tax bill.
HMRC has a very specific definition of what counts as R&D. The project must overcome technical uncertainty to advance knowledge in its field. The element of uncertainty is important, and the solution cannot be easily deductible by a competent professional. You can find out more about HMRC’s definition of R&D here.
The qualifying costs that businesses can claim for are specific, too. These must be expenses accrued during R&D, and can include:
- Employee costs (such as salaries, National Insurance contributions, and pensions)
- Subcontractor costs
- Consumable items: materials, utilities
- Clinical trials.
To make an R&D tax relief claim, brewers and distillers must be able to prove exactly how much was spent on the above categories and prove timescales for the project.
How much R&D relief a business is eligible for depends on its qualifying R&D spend and company size.
- SMEs can deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
- Larger companies may be eligible for a tax credit worth 12% of the company’s qualifying R&D expenditure.
Why is R&D tax relief relevant for breweries and distilleries?
It’s a misconception that R&D only happens in laboratories with scientists in white coats. In fact, much R&D happens as part of projects conducted by normal businesses.
Breweries and distillers are always on the lookout for ways to make their products better for their customers. Whenever this happens, there will usually be a period of research and development at the start of the project lifecycle. For example, before a business can start distilling a new variety of whisky, there will necessarily be a period of planning, research, and testing. If this research and development helps a company advance a new area of knowledge in its field, this falls under HMRC’s definition of R&D.
Are there any restrictions on the type of business that can claim R&D tax relief?
Due to the strict industry regulation that alcohol manufacturers face, brewers and distillers often think they’re not eligible for R&D tax relief. However, we’re pleased to say that this isn’t the case.
Businesses from any sector can apply for R&D tax relief as long as they pay UK corporation tax, and the work meets HMRC’s definition of research and development. This is because R&D is judged on a project-by-project basis, not on a business-by-business basis. This also means that not all a company’s work will involve R&D. An experienced R&D tax relief consultancy will be able to provide clear advice on what projects are covered, and what’s not.
What is the purpose of the R&D tax relief scheme?
R&D tax relief exists to reward businesses for spending money on research and development. It’s a risky business and it doesn’t always result in a successful outcome. Projects may be delayed, or fail totally, costing the business money.
HMRC uses R&D tax relief to reward businesses for taking this risk, and to encourage them to keep doing it. No matter what the sector, R&D and innovation are good for the economy, which is why HMRC wants businesses to do more of it.
What types of R&D might brewers and distillers do?
When it comes to R&D activity relevant to brewers and distillers, the scope is broad enough to encompass many potential projects.
Here are some examples of the types of R&D projects that may be undertaken by brewers and distillers:
- Using alternative ingredients and creating new flavours
- Improving the distilling or brewing process, such as making it faster or possible on a larger scale
- Increasing or reducing the alcohol content without affecting the flavour
- Creating healthier versions of products, such as lower-calorie, reduced-sugar, or gluten-free
- Making a product more sustainable or environmentally friendly, or reducing its waste by-products
- Inventing totally new types of alcohol
How do brewers and distillers make an R&D tax relief claim?
Even though R&D tax relief is technically a form of tax self-assessment, businesses rarely do it this way. Most choose to work with an experienced R&D consultant who can advise and support them through the process.
Although other R&D tax relief firms may have their own way of doing things, here’s how we do it at Hamilton Blake Consulting:
- Introductory call: we’ll spend some time getting to know your brewery or distillery. We want to ensure the working relationship is right for both parties.
- Working meeting: We’ll spend 2-3 hours discussing past projects with you. We’ll ask you to discuss your work in detail, so we can identify the elements of R&D.
- Transfer of information: We will need things like invoices and timesheets to prepare the claim for HMRC, as well as the exact date the project started and ended.
- Creating and submitting the report: Once we have all the relevant information, we’ll prepare the report on your behalf. We’ll get you to look through the report and provide sign-off before we submit it.
- Aftercare: We’ll be on hand to support you after your claim, responding to any queries from HMRC and working with you to prepare any future R&D relief claims.
Want to find out more about how your brewery or distilling business could benefit from R&D tax relief? Get in touch to discuss your projects in more detail.