Food and beverage (F&B) companies need to innovate to stay competitive in a landscape of changing consumer demands. Companies are required to continually improve products while balancing efficiency, quality, cost, and compliance. However, with HMRC’s heightened scrutiny of research and development (R&D) claims in this sector – evidenced by increased enquiry rates and stricter substantiation requirements – businesses must take a meticulous approach to planning and reviewing them. This diligence is essential, even for businesses with a solid history of unchallenged claims, to ensure compliance and to fully capitalise on the benefits of the schemes.
Companies should prioritise optimising their claims while implementing strong governance measures that yield robust and defendable submissions. It's imperative that R&D projects not only strive to advance industry standards in science and technology but also avoid claims based on trivial product or manufacturing updates.
Recent legislative changes surrounding R&D further emphasise the necessity of well-supported claims.
HMRC has made significant investments in R&D compliance, so mapping and documenting all R&D efforts throughout the entire product development lifecycle, from small-scale innovations to extensive industrial process designs, is vital, as the intensity of R&D can vary at different stages.
F&B companies are increasingly being asked by HMRC to demonstrate how their innovations address specific scientific or technological gaps in the market rather than merely improving existing offerings. Companies should therefore maintain detailed documentation of projects, educate teams on changes in legislation and HMRC's guidelines, and leverage technology tools to track and document R&D activities efficiently.
Companies must also be vigilant regarding how these legislative changes could impact their R&D claims. Key updates include the new merged scheme, restrictions on overseas activities, and new rules concerning contracted-out R&D. Assessing how these changes affect your business operations is crucial for ensuring adherence to compliance standards.
These concerns shouldn't distract, however, from the significant opportunities for R&D in the F&B sector.
There are several areas where F&B businesses have strong opportunities to claim reliefs for R&D activities.
New products which align with changing consumer preferences, such as vegan alternatives, high-protein or low salt/sugar options, new flavours, or reduced packaging, can contain qualifying R&D activities, particularly where there's a focus on extending the knowledge and capabilities of existing food science. Improvements to existing products and production techniques can also qualify for R&D, for example, where there's an underlying knowledge gain around the food science behind these improvements. These projects could be driven by the need to comply with new legislation, or improvements to the shelf life, consistency, or nutritional profile of existing products.
Stepping up lab or kitchen-based recipes to full-scale manufacturing can contain R&D activities, particularly where there are numerous trials and stages of re-development to ensure product viability for it. As the industry faces increasing pressure to reduce its environmental footprint, manufacturers are adopting greener processes and materials to align with sustainability goals. Technologies developed or adapted in ways that go beyond off-the-shelf solutions, including AI, can also qualify as R&D activities.
By focusing on these areas, businesses in the food and beverage sector can maximise their R&D opportunities, ensuring their claims aren't only well-supported but also resilient against HMRC scrutiny.
For more insight and guidance, get in touch with Matt Foulger and Lucy Mackenzie.
