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Identifying eligible clients in Food & Drink

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Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog series, we’ll be digging into some less obvious sectors and discussing what to look for when assessing eligibility!

In the second part of this series, we’re looking at food and drink manufacturing. As with our previous subject, agriculture, the level of eligible R&D to be found in this area is misunderstood. In fact, experts are often poles apart, with some stating that there’s no eligibility at all in food and drink, and others preparing claims for anything and everything!

As with most things, the answer is somewhere in the middle – some food and drink manufacturing can be carried out without ever doing eligible R&D, whereas other companies end up doing a huge amount of qualifying work.

What to avoid

As with agriculture, it’s worth taking the time to first think about the types of food and manufacturing companies that don’t do any eligible work. As a first pass, if you have clients in this sector that produce traditional foodstuffs, for example bread, using tried and tested techniques and without investing time and money in trying to improve their recipes or processes, they’re almost certainly not doing eligible work, so you can remove these from your list.

Beyond this, it’s worth thinking about the scale of the operation, and whether the work they are doing could be done easily in a domestic kitchen. For example, consider recipe development in restaurants – while they are potentially developing new and cutting-edge dishes, they’re unlikely to be doing anything that advances food science, and most of what they do could be done by a skilled home chef.

In fact, in food and drink manufacture, new product development doesn’t often qualify as eligible work, as most of the time the company can use existing knowledge and processes, with some tweaks, to produce and scale these products.

Another ineligible strand of work you often see in food and drink is companies diversifying and starting to produce a range of products that they’ve never offered before, but that are not new to the industry as a whole. Good examples of this might be breweries branching out into producing gin, or cake manufacturers moving into bread production – much as this might be new to the individual company, it’s not an advance to the industry as a whole.

Ok, so what should I look for?

So, now that we know what ineligible food and drink R&D work looks like, what areas should you be focussing on?

Responding to new legislative requirements

Within the food and drink industry, there is a huge amount of legislation that manufacturers are required to comply with, and that changes regularly. Even where there is no legislation, government advice and taxation regimes can affect food and drink manufacturers. For example, increased tax on products that are high in sugar has led to a huge amount of research into sugar alternatives and how to reduce sugar levels without detrimentally affecting the organoleptic properties of these products. Much of this work will have elements that are eligible for R&D tax relief.

Scaling and commercial production

As stated above, new recipe development doesn’t often involve making an advance in science or technology. However, scaling these recipes up to commercial production levels can be difficult, and often involves elements of eligible R&D. Companies that work to produce food and drink on a larger scale, especially where this hasn’t been achieved previously in the industry, are often doing eligible work.

Changes in fashion

As well as legislative changes, food and drink companies are required to respond to changes in consumer requirements. For example, the increase in people following vegan or plant-based lifestyles has led to a huge increase in the demand for vegan alternatives to standard products. Where this requires advances to be made in food science, for example in the production of convincing meat alternatives, you’re likely to find eligible work.

Supply Chain Companies

In common with agriculture, the supply chain to the food and drink industry can be where you are most likely to find eligible work. From engineering companies developing advanced food processing machinery to chemistry companies producing compliant food additives to comply with new legislation, this can be a very rich seam to tap.

How to write an R&D tax relief technical narrative

With HMRC’s new mandatory requirement for project descriptions on all submissions, we wanted to share our experiences to help others to write their best possible technical narratives.

Available to download here.

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