Research and development (R&D) tax relief is a government-led tax incentive that exists to encourage and reward those companies that are actively looking to develop new systems, processes, products, materials, devices, or any changes to the way a business works. Companies can reduce their tax bill or claim payable cash credits as a proportion of their R&D expenditure. Here, business consultant David Grant, a specialist in the brewing and pub industry, unravels the mystery of R&D for independent brewers and, crucially, asks: why are brewers not claiming it?
Research & development is often thought of as the preserve of big tax-paying corporate entities or huge pharma companies and the like — all white coats, laboratories, and microscopes. Neither perception is true. Certainly you don’t have to be big to qualify for R&D tax relief, or even be turning a profit. Indeed, if you are a loss-making business the incentive is significantly more generous!
Breweries are regularly doing R&D without a white coat in sight — they just don’t know it. In today’s fiercely competitive brewing environment brewers are unlikely to survive by simply brewing good beer. The fast pace of the industry means keeping up and constantly moving ahead, striving to be innovative and creative, inventive and sometimes inspired even.
Often, as a new brew gets under way, many small brewers spend a big chunk of their day thinking — and talking. But much is not idle thought and chatter. Brewers are often pondering the next beers they will tackle and how they can push the business forward. Maybe creating new products, new branding, looking at raw material suppliers, marketing, packaging or energy savings.
This thinking is normal. It’s what brewers do. They may then go on to chat their thoughts through over a brainstorming tea break with the team. Some ideas will be discarded. Some will be parked. Some will ‘have legs’ and be adopted for further investigation. You might then call your hop supplier to seek advice on the characteristics, suitability, and availability of hops for a new range, consult your malster to choose the best malt, or talk to a bottling or canning company.
All this is in the daily/weekly routine of a small brewer. It is also the start of your R&D. From there you may progress to trial brews. Some will work, some will not — more research. The good news is that this R&D can give you financial benefits in the form of tax credits. Every brewer I know undertakes R&D. Many don’t realise it, and therefore never claim.
The incentive exists to encourage investment in this research and development. Technically, the relief works by reducing a company’s corporate tax liability by an amount equal to a percentage of the company’s eligible R&D expenditure. It allows up to 33.35% of a company’s R&D spend to be recovered, either as a cash repayment or to mitigate corporate tax.
These R&D tax credits can provide an essential source of non-repayable funding for many small, medium, and large enterprises. All companies that spend money developing new products, processes, or services, or enhancing existing ones, are eligible for tax relief. A good test to determine eligibility is whether you or your project team faced uncertain outcomes at the start but were then prepared to take on the inherent challenges and financial risk to solve that uncertainty.
I have spent some four decades in the brewing and pub industry and have considerable experience in this arena. As managing director of a local brewery I was able to claim R&D tax credits for a number of innovative projects. For instance, we were in the forefront of the first wave of brewers to launch a premium blonde beer, which became a top-selling brand. Later, we revived the cultivation of Maris Otter barley in the North West, partnering with Lancashire farmers who had long ceased to grow the crop. These projects took time to research and time to develop; they qualified for significant tax credits.
With this experience and knowledge, I have teamed up with Signature Tax Innovations, a highly experienced specialist in this complex area of taxation, to offer our expertise to small brewers looking to maximise their profits. Together we can drill down into a business to identify its R&D investment. We can go back two years for claims and we continually deliver returns to our
clients far in excess of the national average of £64,000.
Recently, we have secured a six-figure tax credit for a well-known enterprising brewer based on an East Yorkshire arable farm, which has developed its own barley supply. We were also able to help a publican specialising in maturing premium Scottish malt whisky to claim against a visit to Australia when sourcing wine casks. Just two successful examples.
In these deeply troubled times, when the brewing industry faces the ongoing challenges of the covid-19 crisis and the threatened changes to small brewers’ relief, businesses must explore every possible avenue to survive and thrive. So
we ask this: why are independent brewers not claiming this generous government incentive?
• If you push the boundaries in your brewhouse, you should be looking now at investigating tax credits. For those brewers with a financial year end in December, there is still time to apply. Email email@example.com