How the ‘soft drinks levy’ could impact the food industry
In March’s 2016 Budget, the Government announced that a “soft drinks levy” would be introduced to those producing/ importing soft drinks with added sugar. Since the introduction of the levy was announced, other sectors within the food sector have been left speculating whether this levy could extend beyond those in the soft drinks market.
The objective of this tax is to encourage companies to reformulate and reduce the amount of sugar in their products to tackle the obesity epidemic.
A consultation document that was released last month outlines proposals of the levy which is to be implemented from April 2018, giving soft drinks companies a two year time frame in which to reformulate and develop their products in line with the policy.
Whilst reformulating their products in line with these reforms, many soft drinks producers may be able to claim the associated research and development costs. Essentially, research and development tax credits provide companies who innovate, or develop new products, processes or systems, generous tax rebates.
Currently, the enhancement for SMEs is 230% of qualifying R&D expenditure. So for example, a small profitable company (paying corporation tax) that incurs expenditure of £100K on qualifying R&D can deduct £230K when calculating its taxable profits. The benefit of the additional £130K deduction equates to a £26K corporation tax saving based on a corporation tax rate of 20%. This effectively creates a 26p corporation tax saving for every £1 spent on qualifying R&D activity, with slightly different rules for loss-making companies.
It’s important to remember that there are time restrictions regarding making R&D tax credit claims, with HMRC allowing companies to claim retrospectively for a maximum of two previous year ends. For example, a business which has a 31 December year end can currently make a claim in relation to the qualifying development activities undertaken during the years ended 31 December 2014 and 2015. Therefore allowing businesses to claim for the year ended 31 December 2014 up until 31 December 2016.
However, by entering a claim on 1 January 2017 (just one day after the year end) a business would be unable to make a claim for the year ended 31 December 2014 and will therefore miss out on the R&D tax relief for this period.
We are able to advise as to whether you may be eligible for R&D tax relief, and indeed how much you may be entitled to. To find out more about R&D visit our R&D microsite here.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.
The information was correct at time of publishing but may now be out of date.