When farming and agricultural projects may qualify for R&D tax relief

Agricultural businesses face a unique combination of pressures, including unpredictable weather, labour shortages, environmental requirements and rising input costs. The recent unusually dry weather across the UK, for example, has seen many farmers exploring new ways of managing water resources, maintaining yields and protecting livestock from the effects of prolonged heat and drought. 

Some of the work undertaken by agricultural businesses to address these pressures may constitute R&D for tax purposes, but only where the qualifying conditions are met.  

Examples of areas in which qualifying R&D might arise include: 

• Crop production and agronomy: developing new or appreciably improved cultivation methods, addressing technical challenges around soil health, testing drought-resistant crops or addressing challenges relating to pests, disease and climate resilience. 
• Livestock management: developing new or appreciably improved approaches to nutrition programmes, breeding strategies, housing systems or animal welfare where scientific or technological uncertainty is involved. 
• Agricultural machinery and automation: designing new equipment, making substantive technological improvements to existing machinery or implementing automated systems where technological challenges need to be overcome. 
• Precision farming and data technology: using sensors, GPS systems, drones, artificial intelligence or data analytics to improve decision-making where technical barriers must be overcome. 
• Sustainability initiatives: developing new or appreciably improved approaches to reduce emissions, improve resource efficiency, enhance water management or support regenerative farming practices where the project involves scientific or technological uncertainty. 

The key question is whether a project seeks an advance in science or technology and, in doing so, has to overcome scientific or technological uncertainty. In other words, was there a challenge that could not readily be resolved by a competent professional working in that field, requiring investigation, testing and development to find an answer? 

This distinction is important because not every innovative project will qualify. Simply adopting existing technology, changing normal farming practices or making routine commercial or operational improvements will not generally constitute R&D for tax purposes. 

But a project does not have to achieve the intended scientific or technological advance to qualify. The work completed must still have formed part of a genuine attempt to achieve that advance by resolving scientific or technological uncertainty. Trial and error alone is not sufficient.

The R&D tax relief environment has changed considerably in recent years, with HMRC scrutinising claims more frequently and closely. The burden is on the company making the claim to demonstrate that qualifying R&D took place and that the expenditure claimed is eligible. Companies should therefore assess projects carefully against the qualifying conditions and retain appropriate technical and financial evidence. 

Recent tribunal decisions reinforce the importance of this. In Get Onbord Ltd v HMRC, the tribunal accepted evidence from the company’s competent professional and found that formal qualifications were not essential where the individual had suitable knowledge and experience. By contrast, other claims have failed where companies could not provide appropriate competent-professional evidence demonstrating the advance and uncertainties involved. 

Environmental Services Ltd v HMRC further highlighted that experimentation, practical problem-solving and commercial or operational improvement do not, by themselves, establish qualifying R&D. A company must be able to demonstrate an advance in overall knowledge or capability in a field of science or technology. 

Evidence from an appropriately experienced competent professional is an important part of establishing the advance sought and the scientific or technological uncertainties involved. The individual should have suitable knowledge and experience in the relevant field and be able to explain the existing level of scientific or technological knowledge or capability against which the project should be assessed.

For qualifying farming and agricultural companies, R&D tax relief can provide valuable financial support towards eligible expenditure. However, eligibility depends on the nature of the scientific or technological advance sought, the uncertainties encountered and the evidence available to support the claim. 

Businesses should therefore consider the qualifying conditions at an early stage and maintain clear records throughout the project. These may include project notes, trial results, technical assessments, details of unsuccessful approaches and financial records linking eligible expenditure directly to the qualifying R&D activities. 

At Old Mill, our specialist R&D tax team works closely with farming and rural businesses to assess objectively whether their work constitutes R&D for tax purposes, evaluate the available technical and financial evidence, identify potentially qualifying activities, assess eligible expenditure and prepare robust, supportable claims where the conditions are met. 

If you’re investing in new techniques, technologies or processes, our specialist R&D tax team can help you consider whether your projects meet the qualifying conditions and what expenditure may be eligible for relief. Get in touch or contact your usual Old Mill adviser to discuss your circumstances.