Can craft brewers claim R&D tax benefits?

In a nutshell the answer is yes, innovation in any industry can qualify for Research & Development (R&D) tax credits, brewers are no exception. Read on to see how one craft brewer benefited from reclaiming some of their development costs under the UK R&D tax credit scheme.

When we first met with The Ramsgate Brewery they were already award winning brewers but no company can rest on their laurels, so they were keeping their range fresh by adding new beers on an annual basis. They believe this is essential to remain competitive – “there is an ongoing need to innovate to meet constantly changing tastes and fashions in beers”.

Having moved to larger premises a few years earlier, they were also focusing some of their resources on fine tuning their unique brewing processes.

They were not aware of R&D tax credits but following an initial telephone conversation agreed that it would be worth looking into.

Approach 

We carried out a free R&D eligibility assessment over the phone and that indicated that there was scope, so we met with the FD and Head Brewer to talk through what they were doing that might qualify as R&D.

They explained how the development of new beers represents a commercial risk as they can never be sure how much effort will be needed to develop a successful new beer. This is especially true of their more innovative ideas, which sometimes include using ingredients in non-traditional ways or using non-traditional ingredients and brewing processes.

They partially mitigate the development risk associated with creating new beers by test brewing very small pilot batches using home brewing techniques. But that only gives them an indication of potential because selected recipes may not prove scalable. One reason for this is that extraction on their main plant will normally be higher than it is on a home brew, so the results from scaling up a test recipe cannot be fully determine. In the end they have to take an educated guess and make adjustments during the initial batch production process, which may or may not result in a successful brew.  

The experimental process they undertake to develop new beers qualifies as R&D under the R&D tax credit scheme, because it involves resolving scientific and technological uncertainties to create a new brewing process and product. For example there are uncertainties over how to achieve the desired taste while also maintaining the right balance in colour, aroma and the ph levels, without creating sediment (the balances can change when a recipe that worked as a pilot is brewed as a large scale batch).

The Ramsgate Brewery also experiments with unusual ways of adding hop aromas during the brewing process. The standard method is to put hop pellets into the beer. One new method they experimented with involved developing a bespoke piece of kit that they manufactured from an existing vessel – this was also a qualifying R&D activity.

Our support included helping them with:

·       Scoping out what activities qualified as R&D each year;

·       Drafting a technical justification document listing their R&D projects and saying why they qualified;

·       Identifying their qualifying R&D costs.

We also liaised with their external tax accountant to calculate their R&D claim and get it filed as part of their annual corporation tax return.

Outcome

The Ramsgate Brewery is a craft brewer so while their investment in R&D reflects their size and their claims are therefore modest, the extra funds released have been very beneficial in mitigating some of the financial risk associated with being an innovative brewer.

The corporation tax reduction they get each year equates to around 25% of what they spend on R&D (which includes staff salaries and consumables such as energy).

Testimonial from Lois Gadd, The Ramsgate Brewery: “RandDTax were great to work with and made the whole claims process easy”.

Can you qualify?  Click here to check out our R&D Tax Credits Checklist for Breweries