Tax implications of farming research and development

The use of drones, robots, precision fertilisers and hi-tech machinery is increasing.

In addition, there is cutting-edge research taking place into sources of feed and animal nutrition. The majority of trials into innovative feed, nutrition and animal welfare systems is taking place on farms.

The Government recognises the importance of innovative thinking to solving problems and HMRC administer Research and Development Schemes. In order to be eligible to make a claim to HMRC, the farm must trade as a UK registered company incurring expenditure on solving a problem on the farm; the work must be innovative and be of benefit to the farm business. Activities that qualify as research and development for tax purposes are considered on a case-by-case basis. Relevant examples in the farming sector include research into livestock feeding systems; livestock welfare; greenhouse gas emissions; robotics, annual genetics; precision farming; cow fertility.

If a UK farming company can prove to HMRC that it is incurring costs to solve a problem or uncertainty on the farm there are three main schemes that the company can claim: a small company tax credit scheme, a large company tax credit scheme and a scheme to deal with capital expenditure used in research and development. As long as the work carried out on the farm is innovative to that farm and the farm can benefit from the results of the trials, then it can be classified as Research and Development.

The tax relief from HMRC on additional research costs can be claimed as an extra credit in the company’s annual tax return. The tax relief on capital expenditure used in research and development is claimed as a Capital Allowance in addition to the Annual Investment Allowance. In order to be financially sustainable, the farm business must be innovative in its thinking with a constant focus on reducing costs, improved productivity without increased costs and managing greenhouse gas emissions. Farm businesses can avail of the tax incentives from HMRC and use the network of expertise in AFBI; CAFRE; Agrisearch; LMC and the Universities.

For further information, telephone (028) 82241515.