R&D tax relief – the secret safety net for small breweries?

Posted by on Dec 1, 2014 in Editorial | 3 Comments

“If we’d had the confidence to account for our time, it would have [led to a] whole different structure to our business.”

The words, not of a brewer, but a ciderman. Peter Stuart of Thistly Cross, speaking about something that he strongly believes could have made a difference to his company, had he been aware of it earlier: R&D tax relief. A Government-backed initiative, this scheme provides for businesses who are taking genuine efforts to push the industry forward by letting them recoup some of the monies in tax reductions. In short, any money spent on Research and Development, if properly accounted for, can be claimed, and the Government will pay a third of that amount back to the business.

“It’s the biggest bombshell to hit me for quite some time,” continued Peter, as we talked it through over a beer at Cloisters Bar in Edinburgh. “I’ve mentioned the subject to a few brewers now, and no-one seems to know of it.” I asked him what the bottom line could be for breweries and this scheme. “Well, I would think that most microbreweries spend 90% of their start up time, labour and money on R&D and that can continue for the first couple of years,” he replies. “If a third of this investment might be paid back, how many more start ups would thus be attempted?”

Peter was made aware of the UK R&D scheme in a chance conversation at Craft Beer Rising earlier in the year, a chat which led him to accounting firm Johnston Carmichael. Peter told me they have significant experience of this incentive, and how it pertains to the brewing industry. I got in touch with Kian Coertze at JC, and he expanded on Peter’s thinking. “Under the SME (Small or Medium Enterrpise) scheme the tax relief on allowable R&D costs is 225%. This means if an SME spends £40,000 on R&D, they will receive an additional £50,000 of tax relief, saving them £10,000 on their tax bill.”


So what exactly qualifies as R&D? And how can breweries prove this?

“Broadly speaking,” Kian continued, “the project must be seeking to make an advance in science or technology. The advance must be novel to the industry as a whole, i.e. not just novel for the company. The project must also be seeking to resolve fundamental uncertainties which are not readily deducible by a competent professional in the field. The knowledge on how to overcome these uncertainties should not be in the public domain.”

This concept of Fundamental Uncertainty is key to the entire process – the brewery (or any other business applying for R&D credit) has to demonstrate that they have overcome a significant problem in their development, and done it without the help of a consultant. As Kian went on to state – “if an uncertainty could be resolved through routine discussions with other professionals, this would be viewed as a ‘routine uncertainty’ rather than a ‘fundamental uncertainty’.”

On the face of it, this would exclude quite a lot of what potentially could be claimed for, I’d have thought. Peter Stuart isn’t so sure, though. “I would assume if you can go out easily and phone someone up to fix your problem, it’s not R&D, no. But for us, because of where we are, and the guys on Orkney and Shetland, or Loch Lomond, or the Borders; its’ not like Burton-on-Trent, sometimes you have to go it alone.” (Kian confirms there is a separate category for R&D activity claimed for with consultants; subcontractor costs).


So what specific things do Peter and Johnston Carmichael believe brewers could claim for?

“We’re opening small-scale cider kegging, which is a little-known thing,” says Peter. “A lot of the equipment is cobbled together, pasteurisation or sterile filtration is part of that, so all of that process you can claim for. We’ve developed one or two in-house bits of kit, that have been very cost-effective.” Kian also offers suggestions – “a project involved in refining (or unfining as is currently on trend) may qualify if it has involved developing a new recipe, product or process which advances science or technology in the brewing industry as a whole.”

“For example,” he continues, “a brewer may need to resolve fundamental uncertainties in relation to the chemical or biological interactions between ingredients in order to create a new product. Or with regard to meeting efficiency targets, for example, where it can be demonstrated that an innovation has been developed to increase product yield or decrease reaction times, again we could have a project that qualifies for R&D tax relief.”

I asked both why this principal is – in their experience – under-utilised by micro-brewers. Both gave broadly the same answer; that many beermakers just aren’t aware of this tax relief, or assume it only applies to industries that actually focus on R&D, or work in analysis or laboratory settings. One other fact that’s often overlooked is that the funds available for people claiming this can be backdated – Peter told me claims can be made (with associated, detailed evidence) going back for two calendar years.


Is this too good to be true? I’m not sure – it’s extremely complicated, but brewers have one thing very much in their advantage in this regard; their brewing records. Being meticulous, ledgers and documents about new recipes, pieces of equipment they have developed and how they perform, even being the first to pitch a new strain of yeast or brew with an untried hop varietal; all of these scenarios could constitute Fundamental Uncertainty, and therefore Research and Development. And what about barrel-ageing?

Kian’s initial point about any advance gained being unique to the industry, rather than just the company, is an interesting one. This could be where it all boils down. If you brew a new saison, is that helping the industry as a whole? No, of course not. But if you then barrel-age it, having dutifully recorded the malt bill, hop timings and additional ingredients, could you then claim you’re advancing the art of wood-aged farmhouse beers? Does all barrel ageing qualify?

Back to the conversation with Peter Stuart, and a final point he made. “Every batch of beer that’s gone bad when trying to do something new; if you could get a third of the value back, hopefully that will stop breweries from putting out batches of beer that they are not happy with.” Could this be a safety net for brewers just starting out? He seems to think so, although the final decision will, of course, rest with HMRC. R&D tax relief – not, on the face of it, an interesting subject. But it could become a highly valuable one.

Many thanks to Peter Stuart and Kian Coertze for their time. Any brewers wishing to instigate a potential claim for R&D should speak to their accountants about it, or contact Johnston Carmichael.


  1. FyneJamie
    December 1, 2014

    I am a bit cautious about this. We have spent some time with some tax consultants looking a this, and I am concerned that people are pushing quite aggressive definitions of what counts as R&D, which are great for the consultants if they get paid a %age of the tax claimed back, but potentially a big problem if HMRC challenge at a later date and you have to pay the tax back. I’m really not sure how much of what we do in developing new processes and beers really comes within the definitions from HMRC if you read them tightly, and haven’t decided whether we can go ahead without risking getting bitten badly later on.

  2. Kian Coertze
    December 2, 2014

    Thanks Jamie for your comments. Each particular case must be considered carefully on its own merits to ensure that the project undertaken meets the definition of R&D for tax purposes. At Johnston Carmichael we work closely with each of our clients to ensure that all claims for R&D tax relief meet the required conditions and the appropriate information is provided to HMRC to support this. Our approach means that in practice HMRC make few enquiries into claims we prepare. All claims are reviewed by HMRC’s specialist R&D unit and we think it would be unusual for HMRC to approve a claim for relief and process a repayment only to raise queries at a later date and require repayment. If you feel you could benefit from a quick chat, please do hesitate to get in touch.


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