We live in strange times but that shouldn’t mean you put a halt to investing into the R&D side of your business, explains Jay Desai, associate director for innovation funding specialist Leyton UK.

Despite Covid-19 forcing huge restrictions on brewers and their operations during the lockdown and pubs, restaurants and other watering holes being forced to close, the UK alcohol industry has remained buoyant with sales generally well-up throughout.

However, as businesses now adjust to the re-opening of restaurants and pubs, and Government initiatives encouraged consumers to eat out through the ‘Eat Out to Help Out’ scheme, calculating the future of consumer trends will remain tricky.

The scheme didn’t work on alcoholic drinks and there is a risk that the scheme will take away from weekend trade, given that it only works Monday to Wednesday, which is when more people will be likely to enjoy a drink.

While the alcohol industry is likely to see a continued upward trend due to the summer weather and holidays, it is hard to predict demand in September and beyond.

These concerns are only heightened with the fears of a “second wave” and the recent re-lockdown of some areas. Consumers may continue to be cautious to eat out, they may continue to buy more from supermarkets, or they may quickly return to their ‘local’.

This can be difficult for producers and brewers in maintaining cash flow and understanding where the strongest stream of revenue will continue to come from.

Also, the latest announced changes to the Small Brewer’s Relief, which previously supported small brewers through a 50% reduction in beer duty on production of less than 5,000 hectoliters (4,260 U.S. barrels) a year, as of 2022 will now only be applicable to breweries producing less than 2,100 hl (1,790 BBLs).

This will have a significant financial impact for at least 150 breweries including the likes of Burning Sky Brewery in Sussex, Hackney Brewery in London, and RedWillow Brewery in Macclesfield. Not only will it be an immediate impact for those breweries already over 2,100hl but it may discourage smaller breweries from growing any bigger. 

However, there is one government incentive that is significantly underutilised within the brewery industry and which could provide some relief in light of the current economic climate and changes to Small Brewer’s Relief where applicable: R&D tax claims. The majority of innovative brewers easily qualify for such claims, providing access to potentially thousands of pounds of extra cash. 

There are many variations of innovation or development that brewers carry out on a daily basis that would qualify them to claim tax relief.

Covid-19 has even accelerated developments for some brewers, with new direct-to-consumer sales strategies and new approaches to operating with reduced staff or limited supplies potentially qualifying for tax relief.

Many have also utilised the opportunity to supply new markets or to adapt supply chains. Others may have worked to help the Covid-19 relief efforts and temporarily pivoted their operations to create different products such as hand sanitizer. All of these ideas could qualify for relief.  

Although Covid-19 may have been the latest trigger for some forms of innovation in the beer industry, it is not a new concept. The original recipe for beer is one of the oldest recipes in the world (found on Papyrus scrolls around 5000BC), while beer has been drunk in some form for even longer than that. 

It is constantly adapting to new tastes and styles, regulations and sales methods. For example, developments in low-alcohol or alcohol free beers, reduced calories, additional flavours, new forms of bottling or labelling, new fermentation processes or engineering improvements and modifications to production processes all come under the umbrella of innovation.

Similarly, with sustainability increasingly important in daily and long-term operations of most businesses, those that look at more sustainable production methods such as reducing water consumption, recycling ingredients or materials or finding ways to decrease or re-use waste, would count.
Surprisingly, brewers can also claim for innovative ideas that were tried and tested but were not successful as well as those that were.

As brewers continuously work to distinguish themselves in the competitive market or streamline their operations for more effective margins, it is crucial that they employ the incentives available to them,” Jay Desai, Leyton UK

Similarly, any limited company can make a claim, regardless of whether the brewery is profitable or loss-making.

For loss-making companies, the brewer can claim benefits or cash worth up to 33% of qualifying expenditure, and for profit making companies, they can either claim a reduction in future corporate tax or a cash refund, which has on average been around 26% of qualifying expenditure.

Claims can also be made for previous financial years even if the company is currently operating a reduced rate, perhaps because of Covid, compared to those years in which they were fully operational. 

As brewers continuously work to distinguish themselves in the competitive market or streamline their operations for more effective margins, it is crucial that they employ the incentives available to them.

With the current cash flow issues presented by fluctuating consumer demand, these Government incentive schemes are more important than ever.  

Innovation funding is one of the easiest schemes for brewers to use as many businesses will already be doing many things which would qualify. For businesses that take advantage of these incentives, improved cash flow and further innovation may drive further growth, while those that miss out on the cash available risk facing further challenges as the uncertainty of 2020 continues.