Examine R&D to see whether you are eligible for tax credits
Contrary to popular belief, Research and Development (R&D) is not the sole preserve of scientists in white coats. It happens in every business, and farming is no exception. The development of new techniques for getting more out of crops, animals and machines can all qualify as R&D.
So what? It's important for businesses that engage in R&D to know that they are entitled to substantial tax relief, subject as ever to certain conditions. It amounts to 25pc of the total amount spent on R&D, which combined with the standard corporate tax deduction of 12.5pc, means that qualifying businesses can claim a refund from the taxman of €37.50 for every €100 of expenditure.
However, there is a catch. A farmer cannot qualify for an R&D tax credit unless his business is carried on through a company. But with prices improving in most farm sectors, more and more farmers are taking a second look at the option of switching their status from sole trader into a limited company. There are many pros and cons to such a move, but the availability of the R&D tax credit is a definite plus for enterprises that decide to take the plunge.
A number of farming activities could potentially qualify for the credit. The tax credit could apply to trades such as mineral analysis, market gardening and intensive farming. Examples of the activities which could qualify would include the following:
- Research undertaken to maximise crop or livestock yields;
- Development of new types of feedstuff and new processes to produce feedstuff;
- Introduction of a new waste management system;
- Development of new machinery or ancillary components for tractors, trailers, ploughs, etc;
- Creation of more efficient processes.
In our experience, while many companies are carrying out R&D work that qualifies for a tax credit, only a minority are actually claiming the credit. The main reason for companies not claiming the credit is the persisting misconception that it relates solely to large manufacturing companies. In reality, nothing could be further from the truth. Most companies are involved in some form of innovation or process improvement. In many cases, the related costs will qualify for the R&D tax credit.
In order to qualify for the credit, the company engaging in the R&D must be seeking to achieve a specific advancement in, or a resolution of a specific uncertainty in, the field of science or technology concerned. In other words, it is not enough that the company is seeking to improve its own processes, if such improved processes are already in existence in the sector concerned.
The credit is available in respect of expenditure such as salaries, consumables used in the R&D process, and plant and machinery used wholly or partly for R&D purposes. The credit is also available in respect of buildings used wholly or partly for R&D purposes, subject to certain conditions.
The range of activities to which the R&D credit can apply is extremely wide. Improvements to plant performance, production output and existing processes are examples of activities carried out by many companies, which can qualify for the R&D tax credit. The R&D tax credit can be received as a direct cash refund from Revenue over a three-year period, regardless of the corporate tax position. The only restriction is that the R&D credit refund cannot exceed the payroll taxes paid by the company to Revenue in the year. Any balance can be carried forward to future periods. The claim must be filed within 12 months of the accounting period end.
Aidan O'Boyle is a manager in Grant Thornton's taxation unit
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