With the launch of SFI26 and the reopening of DEFRA’s Capital Grants programme, many farmers are understandably focused on securing environmental funding for 2026.
However, one area that is frequently overlooked is the potential interaction between these targeted grants and UK R&D Relief (Merged Scheme).
In our experience working with farming businesses across England, some of the most innovative agricultural projects can potentially benefit from both DEFRA support and R&D relief, provided claims are structured correctly and meet HMRC’s eligibility requirements.
SFI26 – Key Dates Farmers Need to Know
DEFRA has confirmed that SFI26 will open in two application windows.
Window 1 opens in June 2026 for eligible smaller farms and certain businesses without existing Environmental Land Management agreements. DEFRA has indicated that this window is expected to remain open for around two months, but may close earlier if funding is fully allocated.
Window 2 is expected to open in September 2026 for all eligible farmers and land managers.
Alongside SFI26, DEFRA’s Capital Grants programme is expected to open in July 2026 with £225m of funding available for environmental improvements, including:
- Water quality projects
- Air quality improvements
- Natural flood management
- Tree and hedgerow planting
- Boundary restoration
- Slurry and nutrient management infrastructure
With demand expected to be high, farmers should ensure land mapping, permissions and supporting evidence are prepared well in advance. Please note, there will be no SFI26 agreement which can be worth more than £100,000 per year.
Can SFI26 or Capital Grant Projects Also Qualify for R&D Tax Relief?
The short answer is yes, sometimes.
A common misconception is that receiving a government grant automatically prevents a business from claiming R&D tax relief, administered by HMRC through the corporation tax system. Under the current merged R&D scheme, this is not necessarily the case.
The more important question is whether the project involves genuine scientific or technological uncertainty.
HMRC does not provide R&D relief simply because a project is environmentally beneficial or grant funded.
Instead, the work must involve attempts to achieve an advance in science or technology where the solution is not readily available to a competent professional. We have a section on our website about how this can translate specifically into the agricultural sector, which can be found here.
Agricultural Projects That May Qualify
Examples we regularly see within the agricultural sector include:
Precision Farming Systems
Developing or adapting GPS-guided applications, autonomous machinery systems, variable-rate nutrient delivery systems, or integrated sensor networks where significant technical challenges must be overcome.
Slurry and Nutrient Management Innovation
Projects involving novel slurry separation methods, nutrient recovery systems, ammonia reduction technologies or innovative approaches to waste management and processing.
Water Management and Irrigation
Developing bespoke irrigation controls, water monitoring technology, reservoir management systems, or automated environmental response systems.
Environmental Monitoring Technologies
Designing systems that collect, process, and interpret biodiversity, soil health or carbon data where existing technology does not adequately solve the problem.
Controlled Environment Agriculture
Development of new growing systems, environmental controls, lighting optimisation or crop management technologies within glasshouse, vertical farming, or hydroponic environments.
Agricultural Robotics
Projects involving automation, machine vision, AI-assisted crop analysis, autonomous spraying, or harvesting technologies.
What Usually Does NOT Qualify?
Many standard farming activities will not meet HMRC’s R&D definition.
Examples often include:
- Standard hedgerow planting
- Routine fencing projects
- Basic environmental land management activities
- Installation of off-the-shelf equipment
- Normal crop management decisions
These may be excellent projects for SFI26 or Capital Grants but would not automatically constitute qualifying R&D.
The Compliance Point Farmers Need to Understand
The strongest claims are rarely built around the grant itself. Instead, they focus on the scientific and technological challenges encountered while delivering the project.
For example:
A farm may receive Capital Grant funding towards slurry infrastructure.
If, during implementation, the business undertakes genuine development work to overcome technical uncertainties around nutrient recovery, emissions reduction, or process engineering, some of those development costs may potentially qualify for R&D relief.
Similarly, a farm receiving SFI payments for environmental outcomes may simultaneously undertake experimental work around soil carbon measurement, environmental monitoring systems, or precision farming technologies.
The key is ensuring that:
- The technical uncertainties are clearly identified.
- The qualifying work is documented.
- Costs are accurately separated
Preparing Now Could Unlock Additional Value
As agricultural businesses continue investing in sustainability, productivity and environmental outcomes, the overlap between DEFRA funding and innovation activity is becoming increasingly significant.
Farmers considering SFI26 or Capital Grants should review projects early to identify whether any elements involve genuine technological development.
When approached correctly, it may be possible to benefit from environmental funding while also accessing valuable R&D tax relief on qualifying innovation costs.
The crucial factor is ensuring any claim is based on genuine technological or scientific advancement and is fully compliant with HMRC guidance.
How InnoFund can help
We are currently assisting farmers across the country to identify areas of their projects that may qualify for R&D relief.
Many have chosen to engage us at the onset of the last round of SFI related projects to make use of our SecuRD® methodology, helping with data and evidence collection, meeting notes, combatting staff attrition and loss of data and more.
Please reach out to InnoFund for a confidential call about how we can help
