Food and drink update: Investing in the future

Published: Wednesday 5 May 2021

All businesses need to continuously improve and develop in order to grow and differentiate from the competition. The food and drink sector has been through a turbulent 12 months and many businesses have found themselves innovating and adapting on a day-to-day basis.

There has always been a drive for new product development (NPD) across the food and drink industry, mainly to satisfy the ever-changing consumer demands, but equally to address regular changes in legislation in the sector; more recent examples of such are:

  • Requirements for reduction in salt and sugar
  • Sugar tax
  • Increasing popularity of vegan and ‘free from’ products

As businesses continue to navigate their way through the other side of the pandemic, NPD and routes to market should continue to be at the forefront of their minds in order to consider how their business could be adapting for the long term:

  • Sustainability is rising back up the agenda, with businesses looking to reduce their carbon footprints, could this be through (but not limited to) changes to supply chain, packaging, or routes to market.
  • Consumer needs may again be shifting to healthier lifestyles following the impact of the pandemic on their family and loved ones, with yet again more conscious consumers emerging.
  • The plastic tax which will become effective from April 2022 will require a specific percentage of packaging to be recycled, reducing the UK’s use of single use plastic.
  • Has the online delivery service forced through the pandemic changed consumers’ future shopping habits, can you continue to deliver your products through this forum to the same quality and standard as in store purchases. Do you need to adapt your processes or develop your systems to achieve this?

Businesses that are contemplating the above questions, should consider if they qualify for Research and Development tax reliefs. R&D comes in many forms; due to its broad nature, and the fact that many people often do not realise their practice is conducting R&D because what they are doing is often seen as part of their ‘normal’ business practice, it could be the case that your company is already undertaking activities that qualify for additional tax relief or cash payments from HMRC. It may also be possible to structure future activities and documentation to improve the prospects that relief can be claimed.

Some of the R&D tax relief claims that we have helped food and drink companies with include areas such as:

  • Innovative packaging to enable new food products to be delivered through vending machines;
  • Adaptations to food production processes to develop products for ‘in-flight’ preparation;
  • Underlying food science investigations to improve shelf life of products;
  • New manufacturing processes to scale up production through increased automation;

The relief works by increasing eligible expenditure of say £100,000, which already receives 100% corporation tax relief, by a further 130% of this amount (£130,000). The company therefore reduces the profits chargeable to corporation tax by £230,000. With a tax rate of 19% the tax reduction is £43,700, rather than £19,000 on the £100,000 spent. In the above example the cash benefit in a profitable company is 24.7% of the amount of R&D spend.

If the company is loss making, the R&D eligible costs can be surrendered for a cash payment. In this example, if there is a tax loss of £230,000 and the full amount is surrendered, then a cash payment of 14.5% (£33,350) can be claimed.

To support a claim for the enhanced tax relief, records should be kept of the activities undertaken as well as the results of the project. It does not matter if the outcome of the project means that the activities are not implemented in the future.

With so much scope and, in some cases, need for innovation in the food and drink industry, businesses would be wise to make use of the tax reliefs available. In order to maximise the number of areas of qualifying relief and the expenditure that qualifies for the relief, businesses should look to engage with an experienced adviser that can provide support and guidance.

Content image: /uploads/team/unknown.jpg Rebecca Copping
Rebecca Copping
Associate Partner
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