HMRC’s latest figures show a decisive shift in how the UK approaches research and development (R&D). The number of businesses submitting R&D tax credit claims plummeted by 26% in 2023/2024, dropping to just under 50,000 claims under the now far stricter compliance checks.
For the food production sector, the message is all too clear: if they are to be successful in their R&D claims, agricultural and livestock businesses must be able to demonstrate clear scientific or technological advancement, backed by rigorous evidence.
While HMRC is still supportive of genuine R&D, it faces the difficult task of sorting the wheat from the chaff. Claims that may have been accepted just a few years ago are now far more likely to be challenged - in fact, a fifth of claims now face granular examination.
Would your claim stand up to such scrutiny? Or would it wither under the watchful eye of an auditor?
R&D in farming is often more common than producers realise, and this is particularly true in the livestock sector. Many livestock enterprises carry out R&D without even being aware of it; ongoing trials form part of day-to-day management, such as testing feed rations to improve growth rates or health outcomes, trialling sward mixes to enhance grass production or soil resilience, and evaluating new methods to improve disease resistance or animal welfare.
What we might previously have considered as trial and error can often fall under the remit of R&D. It’s important to qualify, though, that these activities must seek to resolve a specific scientific (or technological) uncertainty - rather than deliver a purely commercial improvement to receive the 27p for every £1 they invest in qualifying costs such as wages and subcontractor fees.
For arable businesses, eligibility can be somewhat harder to evidence, but this is still achievable. Logically, much of arable technology is purchased only when it’s already proven to work well and deliver a promising ROI, which can severely limit the scope for showing that there is scientific uncertainty that needs to be further explored or improved.
However, a clearly defined project which is aimed at overcoming a quantifiable agronomic challenge could well qualify. These might include developing improved irrigation approaches, refining harvesting systems, trialling disease-resistant crop varieties or testing new techniques to help crops cope with challenging environmental conditions.
But to be clear, buying a cutting-edge machine, however ‘game-changing’, is not R&D; it’s simply making a sage purchase. In these cases, it’s actually the manufacturer that is undertaking the innovation, and the farmer is a customer adopting the finished product. We could purchase the very latest gadget with all the requisite bells and whistles, but that wouldn’t make us software engineers or tech moguls - simply someone with good taste looking to improve our lives in some measurable way. That same concept rings true in R&D claims.
Only around half of all R&D claims submitted by agriculture, forestry and fishing businesses are currently eligible to receive the R&D Tax Relief, according to HMRC. That is a striking statistic, and one that explains why approximately one in every five claims now triggers an in-depth enquiry.
However, this clampdown isn’t necessarily a cause for concern; quite the opposite. It’s ultimately a positive move because it will actively differentiate what is genuine innovation from what’s simply routine operational activity. Importantly though, it does shift the onus of accountability considerably, as it will now place far more responsibility on farmers themselves as they prepare a claim.
The most common pitfalls include: unclear or insufficient descriptions of the scientific or technological uncertainty, and inflated cost allocations, particularly where advisers have provided broad rather than precise calculations. Further to this, another known issue includes filing a claim that describes commercially efficient improvements rather than attempts to advance knowledge (as we’ve explored). Another avoidable problem is that of poor record keeping or a lack of real-time evidence of experiments and outcomes - as all R&D claims must be able to evidence. It is, after all, a scientific process, so even the most impressive hypothesis must be capable of being realised and replicated, or it’s essentially of no value.
HMRC’s introduction of a personal responsibility declaration for farmers is a particularly notable addition, and farmers must now confirm that they stand behind their claim and fully understand it. This is designed to prevent claims being submitted purely on the basis of optimistic or misleading advice and ensures that farmers apply the scrutiny that HMRC expects - rather than attempting to shift the blame to a third-party offering advice.
In the current landscape, discipline and documentation are paramount. HMRC expects farmers to demonstrate a clear and specific scientific or technological uncertainty that any project claims to attempt to overcome. It must detail why the solution was not already known or easily deducible by a competent professional, when the work began and how it progressed. Similarly, it will need to outline the exact methods used to try to resolve the uncertainty, including (if applicable) what went wrong and how challenges were addressed. Of course, real-time data or observations collected as the project unfolded are absolutely essential to being able to evidence your claim.
Selecting the right adviser is equally important in this regard. It’s integral to R&D claims that farmers understand how their adviser will support them if an enquiry is opened and whether they have a strong record of compliant claims.
R&D tax relief remains firmly rooted as a vital incentive for businesses undertaking genuine scientific research or technological advancement.
By its very nature, farming is inherently innovative; producers are constantly adapting to new disease pressures, climate challenges, welfare expectations and market demands. Many are already carrying out work that meets HMRC’s definition of R&D, but the key is capturing it properly and presenting it in a way that withstands scrutiny.
The tighter regime should not deter farmers from claiming. Instead, it should encourage them to approach the process with clarity, acuity and confidence. Good, verifiable claims are still being approved, and relief remains available where projects demonstrate palpable promise.
With the right documentation and guidance, farming businesses can continue to access support that rewards the innovation at the heart of food production. For support in preparing a compliant R&D claim or assessing whether your projects may qualify, please contact us.
