Making the most of tax incentives for confectionery sector investment

Dr Peter Beavis PhD CSci, chemist and chocolate scientist at ForrestBrown, examines how confectionery companies can make the most of tax incentives

All over the world, governments reward private sector business for investing in innovation. The likes of Australia, Canada, France, Ireland, The Netherlands, Spain, the United States; the UK and others, all offer research and development (R&D) tax incentives.

Why do they do this? Because they are good news for the economy. In the UK for example, HMRC has estimated that for every £1 awarded to an innovative company via R&D tax credits, up to £2.35 is stimulated in additional R&D expenditure.

This is because businesses often spend the benefit they receive on funding the next big push in their R&D work. This can involve hiring new skilled staff, expanding their premises, or investing in new machinery. Economies benefit from this increased productivity as a result.

Get the credit you deserve

The positive impact felt by a business claiming R&D tax credits is usually profound and transformative. In the UK, for example, food and hospitality businesses with less than 500 staff on average receive £35,714 each year.

The R&D tax incentive for SMEs is worth up to 33p for every £1 spent on qualifying innovation. If for example your confectionery business is investing £250,000 in R&D each year, you could benefit from an R&D tax credit worth up to £66,700.

For many of our clients, their claim is worth much more. The power of this incentive is only realised when you start to think about how you could use this money to grow your business.

R&D in the world of confectionery

Innovation in the confectionery industry is intense as businesses rise and fall based on secret recipes. And at the same time, to tackle obesity, the World Health Organisation is advocating sugar taxes, and governments are listening.

Regulatory change like this can be a significant driver of innovation and confectioners all over the world now face the challenge of reformulating their products without compromising on taste. A recent client of mine in the UK benefited from an R&D tax credit worth £200,000 following a project it undertook to recreate an established snack bar for a leading diet brand with less sugar. The company had to work hard to ensure the taste, appearance and texture remained the same.

R&D explained
Understanding what qualifies as R&D can be daunting. Here at ForrestBrown, we find that the following two questions help:

1. Are you creating a new product, process or service?
2. Are you changing or modifying an existing product, process or service?

Essentially, if you’re not sure if your project is possible, or you don’t know how to achieve it in practice, you could be carrying out qualifying R&D.

In the confectionery industry, your R&D is like to relate to either food technology i.e. what goes in to your confectionery or materials science i.e. how it is packaged.
Examples of qualifying innovation in this sector include: Creating new production techniques for confectionery, improving existing confectionery production processes and developing new or improved machinery and equipment for the sector.
It also includes developing new or improved packaging designs to e.g. increase product shelf life, quality assurance processes, and analysis as part of a product or process development project

R&D is everywhere

Business owners and finance directors need to forget any preconceived idea they have of what counts as innovation and instead embrace the idea that R&D can take place in any sector, and in businesses of any size. Armed with this, and the knowledge that R&D tax credits can be a valuable source of funding, a business can be transformed.

For more information visit  ForrestBrown

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