Opportunity in agri-food to reduce tax bill
Many firms carrying out R&D qualify for tax credits but few make the claim
Innovation is one of the keys that will unlock the potential for growth for Ireland’s agri-food industry. The increasingly competitive market place accentuates the need to develop key points of differentiation in order to maintain and develop market share. Creating a culture of smart innovation helps agri-food businesses anticipate new trends, access new markets and technologies, invest with speed and scale where possible, and manage risk, cultural and demographic diversity at a whole new level.
The Governments Food Harvest 2020 report acknowledges the importance of R&D investment to meet changing consumer demands and realise new growth opportunities. Where is the Smart Money Going in Food and Beverage?, a joint Grant Thornton Ireland/UK report, found that 73 per cent of private equity investors and 87 per cent of corporate investors cited new product development as the top driver for growth.
One of the great paradoxes of business is that in times of a recession, investment in R&D and innovation can be side-lined; yet it is creativity and an entrepreneurial spirit that is needed to drive a company and industry forward. The Global Competitiveness Index 2012-2013 ranks Ireland 21 (out of 144 ) as a country with a high quality of scientific research institutions, an extremely well-educated workforce and a willingness to engage in university/ industry collaboration on R&D.
Generous tax reliefs are available in the form of R&D tax credits. Recognising the need to further stimulate R&D activity in the economy, the Government has expanded the terms of the relief in the two most recent budgets.
In a Grant Thornton survey with Good Food Ireland members (Food: The Secret Ingredient for Tourism Export Growth, April 2012), almost 70 per cent of respondents were unaware of the potential of the R&D tax credit. In our experience, while many companies are carrying out R&D that qualifies for a tax credit, only a minority are making the claim. There is often a view held that this relief only applies to “men in white coats” working in laboratory settings.
The definition of R&D for the purposes of the tax relief is much wider. In many cases, the related qualifying costs, such as salaries, consumables and plant and machinery may qualify for the R&D tax credit. Companies in the agri-food industry are carrying out R&D that may include product enhancement, process improvements or advancements in product packaging.
As a rule of thumb, there needs to be evidence of a scientific or a technological advancement in order to qualify for the relief. Key points regarding the relief include:
R&D tax credit only applies to companies, and not to partnerships and sole traders a tax credit of 25 per cent off qualifying R&D spend is available, in addition to the normal corporation tax deduction, resulting in an overall potential tax benefit of 37.5 per cent – it means that companies incurring qualifying R&D can get tax relief for €37.50 for every €100 expenditure; the R&D credit can be used to shelter corporate tax paid or payable; claim as a cash rebate over a maximum of three years; remunerate key R&D employees, due to Finance Act 2012 changes.
Professional advice is advisable when considering applying for the tax relief.
Ireland is not alone in recognising the value this can bring to our economy. Nestlé is one of the world’s largest and most well-known food companies, and one of the key pillars of its 4x4x4 Roadmap is that it wants to be “the leader in innovation and renovation, whether of products, systems or processes”.
In order to develop scale, share risks, and fund transformative innovative projects, the fusion of science, public and private sector resources will become more commonplace. Government and private enterprise are increasingly investing in R&D initiatives in the sector. Kerry Group’s recent announcement to locate its global technology and innovation centre in Naas is heralded as the largest single food innovation investment ever in Ireland, and is part funded by Enterprise Ireland.
Food production and consumption is on the cusp of change as a result of growing population levels, expanding middle classes, sustainability of supply and austerity. Companies who succeed are those that seize this wind of change. Anecdotal and facts-based evidence suggest there is an untapped opportunity for many Irish agri-food firms to reduce their tax bill by claiming the R&D tax credit.
Ciara Jackson is head of food and beverage at Grant Thornton