The tax relief available to forestry businesses which many are unaware of

WITH COVID-19 dominating the headlines throughout 2020, the global threat of climate change has at times been forgotten. However, the climate crisis remains a critical global issue. There is increasing recognition of the importance of building back better after the pandemic, with the creation of new forest and woodland widely understood to be an important tool for reducing emissions. As a result, governments around the world – including in the UK – have introduced ambitious targets for tree planting in order to address the issue.

However, planting still needs to increase to achieve the ambitious targets the UK Government has set, and significant regional variations remain, with over 80 per cent of new planting in the UK last year taking place in Scotland. However, with 10 per cent of land in England and 15 per cent in Wales being woodland, there is huge untapped potential for new planting in these regions to contribute to the woodland targets and the fight against climate change.

As the urgency of establishing new woodland escalates, it has become more crucial than ever for the forestry industry to accelerate innovation. Fortunately, there are government schemes that can offer significant financial support to forestry businesses that are developing new and innovative ways of operating. However, this support is too often overlooked and underused.

Everything from the coatings on seeds to the harvesting and treatment of wood is potentially eligible for R&D tax credits, enabling businesses to reclaim large chunks of cash spent on these processes. This form of tax relief is sadly underused simply because many businesses are unaware that their activities are eligible.

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Faced with aggressive targets for woodland creation and a renewed focus on biodiversity, the forestry sector has seen rapid advancements and innovations that promise to make forestry businesses more efficient and sustainable. As areas like mapping software, 3D scanning equipment and satellite imaging become more widespread and refined, forestry businesses can operate with more precision than ever before, to generate optimal results. We’ve also seen businesses across the sector make use of drones to deliver more accurate assessments of wind damage and potential ecological and geological impacts.

These advanced areas of innovation are all eligible for R&D tax relief, with the government often paying back significant sums of the money that businesses spend on investing in these forms of R&D.

However, what many businesses in the forestry sector may be unaware of is that more everyday activities are also eligible for significant tax relief. Investment in trialling new chemicals and pesticides is eligible for tax credits, as are efforts to develop new planting patterns and methods of managing invasive species and disease control, among others.

These tax credits are not the only source of additional funding for forestry businesses – many businesses in the sector have used grants for financial support for some time, and these can also be a lucrative way of boosting cash flow. However, they should not be the only source of support. R&D tax credits can offer more certainty in terms of future balances and support longer-term financial planning during this critical period for the industry.

More and more businesses across the forestry, agriculture and fishing industries are becoming aware of the scheme, with tax credits claimed in these sectors increasing by 67 per cent between 2015–16 and 2016–17. However, many businesses may still be overlooking these areas for claims, and so missing out on thousands of pounds during these historically challenging economic circumstances.

In 2017, SMEs in the forestry, agriculture and fishing sector claimed less than 1 per cent of R&D tax credits nationally.

The average R&D claim in the farming, forestry and fishing sector came to £41,000 in 2017 – enough to make a significant difference for many businesses, especially as the UK’s 2025 deadline for new woodland creation approaches.

By claiming the right support during this period, forestry businesses can safeguard their financial status and position themselves for success as they look to contribute to a green recovery from COVID-19 and a more sustainable future.

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