Food & Beverage Industry – R&D Tax Credit
This case study exemplifies the application of key legislative requirements for eligible R&D activities as they apply to relevant activities in the food and beverage industry.
Bryan Beef is a privately owned manufacturer of processed beef products for the food and retail industries in the U.K. As part of the food and beverage industry, Bryan Beef is constantly focusing on new product development to remain competitive in the field. It is regularly conducting R&D activities to come up with new products relating to food safety, cost reduction, organic/natural products, dietary guidelines and sustainable resources.
To keep up with the times, Bryan Beef launched an R&D project with the main business objective being to produce certified organic beef products. In order to do this, Bryan Beef had to completely reinvent its manufacturing process.
Bryan Beef had never claimed the R&D tax credit before, and believed its activities would not qualify. Bryan Beef needed to determine the eligibility of its proposed R&D activities in order to know if they qualified for R&D Tax Relief Schemes. It had to be certain that its qualified research met key legislative requirements within the tax definition to demonstrate the project is R&D. These requirements include defining for tax purposes:
- Advance in science or technology
- directly contribute
- scientific or technological uncertainty
Bryan Beef’s Eligible R&D Activities
The R&D tax relief specialist helped Bryan beef determine its qualifying food & beverage R&D activities, made them eligible for a tax credit. Bryan Beef’s research activities included:
- Development of new or improved product formulations to meet changing consumer preferences;
- Development of new packaging to extend the shelf life of products;
- Modifications to existing manufacturing processes to comply with new regulations;
- Development of manufacturing processes to accommodate new products or optimize processing;
- Automation of manufacturing functions to minimize product contamination;
- Continuous improvement projects aimed at reducing scrap, waste, and spoilage and/or conserving water and utilities; and
- Machine layout design changes to reduce manufacturing time and increase production.
Bryan Beef claimed R&D tax relief and was granted more than $140,000 in credits. A sustainable methodology was also established to help the company identify, document and substantiate eligible R&D projects and costs on an ongoing basis.
QUALIFIED RESEARCH DEFINED
Qualified R&D projects consists of research for the intent of achieving an advance in overall knowledge. Advances in capabilities in the field of science or technology through the resolution of scientific process or technological uncertainty general qualify as R&D project. The advancement but not simply be in its own state of knowledge or capability. A companies R&D project must relate to the trade of the business whether it be an existing product or process or one intend to start based on R&D outcomes.
QUALIFYING PROJECT WITHIN THE TAX DEFITION
Activities that are eligible for R&D Relief are defined in the Guidelines by the HMRC, which must be met for the project to qualify as R&D.
- Advance in science or technology
- Directly contribute
- Scientific or technological uncertainty
What records and specific documentation did Bryan Beef keep?
Similar to any tax credit or deduction, Bryan Beef had to save business records that outlined what it did in its R&D activities, including experimental activities and documents to prove that the work took place in a systematic manner. Bryan Beef saved the following documentation as evidence:
- Project records/ lab notes
- Conceptual sketches
- Design drawings
- Photographs/ videos of various stages of build/ assembly/ testing
- Testing protocols
- Results or records of analysis from testing/ trial runs
- Tax invoices
By having these records on file, Bryan Beef confirmed that it was “compliance ready” — meaning if it was audited by the HMRC, it could present documentation to show the progression of its R&D work, ultimately proving its R&D eligibility.