WHAT COUNTS AS R&D IN THE FOOD AND BEVERAGE SECTOR?
In this guide, we are hoping to elaborate on some of the key aspects of R&D that are being undertaken in the food and beverage sector so that you can better compile your R&D tax relief claims.
The food and beverage sector has been home to incredible innovation, but too often this work gets overlooked when the time comes to submit an R&D tax relief claim.
If you have any questions about the R&D work you conduct in the food and beverage sector, be sure to speak to our team today!
WHAT IS MEANT BY R&D FOR TAX PURPOSES?
Before discussing the specifics of the R&D work conducted in the food and beverage sector, it is worth clarifying how HMRC understand the term.
For R&D to be eligible for an R&D tax relief claim, it must seek an advance in science or technology that:
1 Is significant in the sector
2 Cannot be readily deduced by a competent professional
3 Involves some degree of technical uncertainty
4 Features work conducted during the financial year
Routine tasks or any changes made to products in order to make them more commercially or aesthetically appealing are unlikely to be eligible unless those changes meet all four of the above criteria.
WHAT ARE THE CORE ASPECTS OF R&D WORK IN THE FOOD AND BEVERAGE SECTOR?
It is imperative to clarify that not all work conducted in the food and beverage sector will be eligible for an R&D tax relief claim.
While many do claim that cooking is a science, making changes to a recipe will generally not be considered eligible for an R&D tax relief claim if the changes are made for a commercial reason without a strong basis in scientific uncertainty.
While there are likely not many pink loaves of bread on store shelves, the process of putting food dye in bread is a known quantity and that would not be considered innovation even if it is unusual.
Instead, it may be better to focus on some of the other activities that must be undertaken to improve processes within the food and beverage sector.
To provide illustrative examples of how R&D works in the food and beverage sector may manifest, we are going to work through three potential areas of interest that are likely to constitute as R&D.
EXTENDING THE SHELF LIFE OF FOODS AND BEVERAGES
According to the United Nations, over 1 billion meals are squandered every single day across the globe.
We’ll remind you to submit an Advanced Notification and make sure you have all the key dates in your calendar.
This is set alongside a backdrop of 1 in 11 people facing hunger worldwide
The poor shelf life of many foods and beverages could be a significant contributing factor to this global crisis and work that is conducted to rectify the problem is likely to be eligible for R&D tax relief claims.
In theory, extending shelf life is often well understood as it centres around preserving foodstuffs from the bacteria and mould that contribute to food spoiling.
From a purely academic point of view, intense sterilisation is often an effective way of preserving the shelf life of food.
However, such sterilisation also has the effect of stripping the food of its nutritional value and taste, rendering it unusable.
Here in lies the need for innovative R&D work.
While recipe modifications tend to be excluded from the eligibility criteria, if they are applied in conjunction with innovative processes to improve shelf life, they could be considered.
This is because different ingredients may respond differently to novel processes, so experimenting in this area is worth exploring.
Similarly, adjusting the process of sterilisation or pasteurisation may require a degree of technological uncertainty.
While the individual parts of the process are well understood, applying them in innovative and novel ways can directly advance the overall knowledge of the sector.
An example of this might be if a company wanted to find a way to preserve the shelf life of a typically refrigerated product such that it no longer needed to be kept cool.
While it would be well understood that keeping the product cool in the shops and at home is a viable option, finding a process that ensures safety when it is kept exclusively at room temperature would require innovation.
The advance being sought would be the expansion of the utility of that food, as it would be easier to transport it across borders and include it in aid packages to disaster-struck nations.
Circumventing the need for refrigeration would require a complex adjustment of the process that would not be readily deducible to a competent professional – otherwise it would already be the norm.
WHAT PACKAGING CONSIDERATIONS
COULD BE INCLUDED IN AN R&D TAX
RELIEF CLAIM?
Packaging can form part of an eligible R&D tax relief claim, but is an area that is likely to attract the attention of HMRC in the event of an enquiry.
This is due to the assumption that most packaging-related decisions would centre around the commercial and aesthetic appeal of the packaging and less so on the utility.
However, there may be scope for innovation that could be explored in an R&D tax relief claim.
The most likely avenue also centres around the extension of shelf life, but it is possible that environmental sustainability may also channel some key R&D work.
When changing the materials used in the makeup of packaging, it is not a simple case of swapping out one thing for another.
The chemical composition of packaging needs to be carefully assessed to ensure that it will not have an adverse reaction with the food or beverage contained within.
The structural integrity of the packaging is also vital in ensuring that the product survives long enough to be purchased from a shop or delivered somewhere else.
This is part of why environmental sustainability has historically been a low priority, as it is undoubtedly easier in many cases to use packaging that is harmful to the environment if it achieves those other objectives.
However, a growing conscientiousness around the impact on the environment has led to many companies seeking better alternatives.
This environmental sustainability may extend to other parts of the food and beverage sector and may involve the development of novel processes to reduce the environmental impact of food production.
As mentioned, any references to the commercial or aesthetic influences on packaging should be avoided lest they impact the overall eligibility of the R&D tax relief claim.
CAN MAKING FOOD HEALTHIER BE CONSIDERED
R&D?
This is one aspect of the food and beverage sector that is much requested from health professionals, but which can be a challenge to include in an R&D tax relief claim.
Generally, if the shift towards a healthier food or beverage involves adjusting the recipe in some manner, it is unlikely to qualify for R&D.
Even in instances where the recipe may be technically challenging, it should be noted that advances are considered eligible if they improve the overall sector of science or technology.
As such, any work to make food healthier would likely only qualify if it involved some refining of an existing process with novel methods or an entirely novel method.
This is not to say that recipe modification will always be ineligible for an R&D tax relief claim.
A detailed conversation with a specialist R&D tax consultant and a strong technical narrative will be essential for ensuring that any qualifying parts of this process are incorporated into the R&D tax relief claim.
WHY IS THE TECHNICAL NARRATIVE SO IMPORTANT IN THE FOOD AND BEVERAGE SECTOR?
As mentioned previously, the technical narrative can give clarity to any innovative work with which HMRC may be less familiar.
As the food and beverage sector is still underrepresented in R&D tax relief claims, the technical narrative is a core part of ensuring that claims are successful.
While we will help to create this, there are some considerations that innovative businesses should make to enhance the quality of the technical narrative.
These include:
What uncertainty was the project seeking to resolve?
Why was it not readily deducible to a competent professional how to achieve this?
What attempts were made to resolve the uncertainty?
Why did those attempts fail and could that failure have been anticipated?
Was the project ultimately successful?
If the project was successful, what resulted in its success?
Remember, a project does not need to be successful to qualify for an R&D tax relief claim.
The main focus of the technical narrative is explaining the various failures that pave the way to the project’s resolution.
As such, you should endeavour to make a record of any failed attempts to resolve the uncertainty so that they can be incorporated into the technical narrative.
WHAT CONSUMABLES CAN I CLAIM?
Any consumable item that cannot be used in the final product could be considered eligible for inclusion in an R&D tax relief claim.
This is measured by whether the item was destroyed or irreparably altered by the R&D work and therefore cannot be sold on for commercial gain.
With the food and beverage sector, the main consumable considerations are likely to centre around the food and ingredients that are lost when developing novel processes.
For example, if you render foodstuff unsafe or inedible as you try to extend its shelf life, it cannot then be sold to a customer.
Instead, the cost of this could be incorporated into an R&D tax relief claim.
However, if you are developing novel packaging for biscuits and you reuse the broken biscuits in a separate food product after the packaging failed to protect them, you cannot claim money back for those biscuits.
The food and beverage sector also typically sees a substantial input of water and energy to make the products.
Where fuel, water, or energy is used for R&D purposes, the cost of these can be included in the R&D tax relief claim.
However, any of these that are used as part of the routine production should be excluded from the claim, as the commercial product should be sufficient to cover the costs of this.
Discover how R&D tax relief claims can help in the food and beverage sector
We are keen for innovative businesses across all sectors to benefit from the R&D work that they conduct.
As such, we are on hand to support you in determining whether the work you do in the food and beverage sector counts as R&D for tax purposes.
Our claims are 100 per cent eligible because we get to know your project before compiling a claim and we will let you know if something does not qualify.
If your R&D tax relief claim gets flagged for an HMRC enquiry, we will defend it.
There is so much innovation going on in niche sectors that we want to spotlight.
To find out whether you are eligible for an R&D tax relief claim, be sure to speak to our team today!
