R&D Tax Relief in Food Science and Manufacturing: Making the Most of Innovation Under the New Regime
Written by Emma Hussey
Innovation and R&D Tax Reliefs | Director (London Lead) at Azets UK
Emma Hussey leads the R&D Tax team in London, bringing with her a wealth of experience from her time at a Top 20 accountancy firm and a global innovation consultancy.
DDI: +44 7485 329164
Innovation is a defining characteristic of the UK food and drink sector. Consumer demand for healthier products, sustainability targets, changing regulatory requirements, labour shortages, cost inflation and the growth of alternative proteins have all accelerated investment in research and development. Today's food businesses are expected to simultaneously improve nutritional profiles, reduce environmental impact, extend shelf life and maintain profitability.
Many businesses undertaking this activity are unaware that a substantial proportion of these costs may qualify for research and development (R&D) tax relief. Equally, others risk misunderstanding the rules by assuming that all product development constitutes qualifying R&D.
With the introduction of the UK's reformed R&D tax regime from April 2024, understanding where food innovation qualifies has become increasingly important. The value of relief remains significant, but the expectations around evidence, documentation and technical justification have increased.
What is R&D Tax Relief?
R&D tax relief is a government incentive designed to encourage investment in innovation by reducing the after-tax cost of undertaking qualifying research and development activities. The merged R&D expenditure credit scheme (RDEC) offers an above-the-line 20% credit, for accounting periods beginning from 1 April 2024. Alongside this sits Enhanced R&D Intensive Support (ERIS) for qualifying loss-making, R&D-intensive SMEs and provides an approximate 27% net benefit.
For tax purposes, R&D takes place when a company seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty that a competent professional working within the field could not readily resolve using existing knowledge or standard techniques.
Within food science, this often means resolving challenges associated with product stability, preservation techniques, processing technologies, manufacturing scalability, or alternative ingredients where the scientific requirements of the product fundamentally change.
Importantly, this definition is often much narrower than the way businesses use the term "innovation"; however, it is not necessarily to create a breakthrough invention. Incremental technological advances can qualify provided genuine scientific or technological uncertainties exist.
Where does R&D occur in food science and manufacturing?
When discussing innovation in food, attention often focuses on product development. In practice, qualifying R&D can arise across the entire development cycle, from concept generation and laboratory research through to commercial manufacture.
Many projects begin with formulation work aimed at achieving a specific functional outcome. This may involve understanding how ingredients interact, identifying suitable replacements for restricted components, improving shelf-life performance or developing alternative processing approaches. This development can also include shelf life and stability studies.
Technological uncertainty rarely ends once a laboratory prototype has been produced.
Food manufacturers frequently encounter new challenges when moving from bench-scale experiments into pilot facilities and, ultimately, full-scale production. Changes in equipment design, processing conditions, batch sizes, and production speeds can all influence product performance as these change temperature profiles, shear forces, and ingredient behaviour.
A formulation that behaves predictably in a small laboratory mixer may respond very differently in a continuous commercial manufacturing environment.
As a result, pilot trials and scale-up activities often represent some of the most technically challenging stages of a development programme.
The importance of process and line trials
One area commonly overlooked in food-sector claims is process innovation.
R&D tax relief is not restricted to the development of new products. Manufacturing processes may also qualify where they seek to achieve a technological advance and involve genuine uncertainty.
Examples might include the development of novel thermal processing techniques, optimisation of fermentation systems, implementation of new production technologies or overcoming challenges associated with integrating innovative ingredients into existing manufacturing lines.
Production trials are often critical in determining whether a proposed solution is technically viable. These activities can generate valuable evidence of experimentation, particularly where multiple iterations are required before a stable process is achieved.
By contrast, routine process improvements, standard equipment commissioning, or straightforward capacity increases would not normally constitute qualifying R&D.
Qualifying Costs
Under the new regime, qualifying expenditure may include:
· Staff costs for employees directly involved in R&D
· Third party spend on externally provided workers and subcontractors
· Consumable items and utilities used during experimentation
· Software, data and cloud computing costs
For food manufacturers, staffing costs typically represent the largest component of a claim, although consumables used during laboratory development, pilot trials and manufacturing experiments can also be significant.
Cross-functional teams often contribute to qualifying R&D activities and should not automatically be excluded from consideration.
Building a robust claim
The strongest R&D claims are often those supported by evidence generated during normal project delivery.
Step 1: Identify the Technical Challenges
Start by establishing:
· What advance was being sought?
· What scientific or technological uncertainties existed?
· Why could they not be resolved using existing knowledge?
This forms the foundation of the technical narrative.
Step 2: Document the Journey
Maintain records such as trial reports, product development documentation, technical meeting minutes, process validation records, and production trial outcomes.
Many food manufacturers already generate this evidence as part of normal technical governance processes.
Step 3: Map Costs to Activities
Quantify employee involvement, consumables usage, subcontractor engagement, external specialists, and software expenditure.
The methodology used should be reasonable and supportable, and clearly linked to qualifying R&D activities with contemporaneous evidence (where possible).
Step 4: Focus on the Technical Story
Over the past few years, the government has introduced stricter claim requirements, including mandatory additional information submissions and increased compliance activity, placing greater emphasis on claim quality and technical evidence.
HMRC expects claims to present a clear technical narrative that explains not only what was undertaken, but why the work represented R&D under the legislative definition.
Common areas of risk
The food sector has traditionally generated a significant number of R&D tax claims. As a result, it has also attracted increasing attention during HMRC compliance activity.
· Assuming New Products Automatically Qualify - This remains one of the most common mistakes. A new product may involve no qualifying R&D if established techniques are simply applied.
· Confusing Commercial Innovation with Technological Innovation - Terms such as market-leading, consumer-led, premium, and sustainable do not necessarily demonstrate qualifying R&D activity.
· Including Post-R&D Manufacturing - Once uncertainty has been resolved and work becomes routine, subsequent manufacturing activities generally do not qualify.
· Poor Cost Apportionment - Broad estimates with limited supporting evidence can lead to overclaiming and increase the likelihood of compliance challenges.
· Insufficient Technical Evidence - Claims should be supported by documentation generated during the project, with weak technical explanations also increasing compliance risks.
Looking beyond R&D tax relief
For innovative food businesses, R&D tax relief is often only one part of a wider innovation strategy.
Patent Box may offer an attractive opportunity for companies generating income from patented technologies, reducing the tax rate applicable to qualifying profits. This can be particularly relevant where proprietary processing technologies, ingredients or manufacturing solutions have been protected through patents.
Research and Development Allowances (RDAs) may also provide relief on qualifying capital investment in facilities, pilot plants and research infrastructure.
Meanwhile, early-stage food technology businesses seeking growth investment may benefit from schemes such as the Enterprise Investment Scheme (EIS), which can make investment opportunities more attractive to potential investors.
Taken together, these incentives can play a meaningful role in supporting innovation throughout the commercialisation journey.
Conclusion
Innovation within the food and drink sector rarely follows a linear path. Technical challenges emerge throughout formulation, scale-up and manufacturing, often requiring significant scientific and engineering expertise to overcome.
The UK's reformed R&D tax regime continues to provide valuable support for businesses undertaking this work. However, as the claims environment evolves, success increasingly depends on a detailed understanding of what qualifies, robust technical evidence and clear documentation of the uncertainties faced during development.
For many food manufacturers, the opportunity is not simply to claim relief, but to build a more structured approach to capturing and evidencing innovation as it occurs.
FAQ
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No. Qualification depends on whether the project sought an advance in science or technology and involved genuine technical uncertainty.
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Yes, when associated with qualifying R&D. Pilot trials are often integral to resolving uncertainties associated with scale-up and commercial manufacture.
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Potentially. Process innovation can qualify where technological uncertainties are present and systematic investigation is required to overcome them.
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Yes. The outcome of a project is irrelevant. Failed projects may still qualify if genuine R&D was undertaken.
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Enhanced R&D Intensive Support (ERIS) is a scheme available to certain loss-making, R&D-intensive SMEs and provides enhanced support compared with the standard merged RDEC scheme.
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Yes. Where patented technologies generate qualifying income, Patent Box may provide additional tax efficiencies alongside R&D tax relief.
