Experts provide insight for how logistics firms can use R&D tax credits to begin to take advantage of their innovation
Evidence suggests that more awareness is needed of the range of applications for R&D tax credits in the UK logistics industry. With HMRC data revealing that the sector made up 0.9% of UK R&D tax credit claims, those operating in the industry are encouraged to consider whether they might be eligible.
For those that did make a claim from the sector, the average value of a claim was £70,588 in 2017-18.
What is R&D tax credit for logistics?
In the UK, companies are able to claim tax relief for their R&D activity. The schemes for SMEs and larger companies are both administered by HMRC. Typically SMEs get back up to 33% of the amount they’ve spent on qualifying R&D. Large companies could get more than 10% of their R&D spending refunded.
According to HMRC, to get R&D relief, you need to create a new product, service or process, or change an existing product, service or process for the better. It can even be applied for to make tax savings on innovation that has failed.
There is a considerable amount of R&D surrounding logistics. A typical claim in the logistics sector could include:
More efficient and environmental routing
API (application programming interface) linkage to carriers and suppliers
Real time and JIT (just in time) distribution and warehousing
Internal stock management
All the above areas require state-of-the-art solutions to be developed from the ground up – the kind that cannot be bought ‘off the shelf’. Additionally, in many cases logistics companies are using outdated legacy systems and infrastructures which need bringing up to date.
Amid increasing pressure on the logistics sector to improve efficiency, meet environmental targets and streamline communications, many logistics or supply chain companies are simply unaware that they are carrying out compliant R&D activities.
Dominic Bartholdi, Head of Business Development at R&D tax credit specialists GovGrant, provides expert insight into R&D claims in the logistics sector:
Why the logistics sector is missing out on savings
We find that companies from all sectors have the potential to claim UK R&D tax relief. For tax purposes the definition of R&D is very broad.
We know that logistics businesses of all kinds are benefitting from innovative technology which is constantly streamlining their processes and allowing them to work more efficiently at greater scale. R&D claims can come from all types of improvement, however small, and we see this happening in all aspects of the logistics industry.
Is it known that logistics companies are not claiming where they could be?
It’s not just a case of companies being unaware of R&D tax credits. In some cases they may already be claiming, but not have explored the full potential of that claim. For example, AnyVan, an online delivery, removals and transport marketplace founded in 2009, identified the opportunity for savings on their innovation through R&D tax credits with the help of GovGrant.
A full review of a previous two-year R&D tax credit claim, which had been performed by another specialist company, helped to identify major areas of qualifying expenditure that had been overlooked. With the correct technical and financial data in place, the uplift claim resulted in new benefits for AnyVan in addition to what they had already received.
How much innovation is there in the logistics sector, and what qualifies as expenditure?
By nature, logistics is an industry with innovation at its heart. Companies are always trying to find new ways to make transportation of goods more efficient, profitable and sustainable, whether via simple changes to working practices or major new technological developments. Keeping drivers in the loop safely while they are on the road, and ensuring that all opportunities for business are taken advantage of along the way, are key priorities in the sector at present.
There are many examples where we’ve seen specific innovations which were qualifying expenditure for R&D tax credits. Typically these come from hauliers, distributors, retailers with their own distribution hubs, manufacturing and packaging facilities, FMCG (fast moving consumer goods) distributors and car and van hire companies.
Examples of qualifying expenditure can include:
New and innovative ways of being more efficient
Maximising the use of vehicles to better consolidate multiple deliveries
Using GPRS to assist in finding routes which are more fuel efficient and allow for multiple drops
Vehicle tracking systems to accurately position and locate vehicles and ensure that route times and driver times are lowered
Ways to ensure vehicles are in the right place at the right time, including for the start of the next day
Integrating companies’ own systems with those of their suppliers, customers and/or other hauliers to increase efficiency for replenishment
New automated systems for more accurate business reporting and analysis
Management of internal stock movement to ensure that goods are shipped in and out based on FIFO (first in first out)
What advice would GovGrant give to business owners and
transport managers in the logistics industry who are unsure whether they should
Seek specialist advice on R&D tax credits in the first instance. Our priority is to get you the maximum benefit you deserve for innovating. Initially we will assess the financial viability to make sure it’s worth making a claim, by reviewing your management accounts and tax computations. We don’t want to waste your time so we’ll give you realistic feedback from day one.
If there is a good chance of making a claim, we then arrange a meeting with each relevant department or site. This is when our specialists find out exactly what is qualifying R&D. We never ask the question ‘Tell me about your R&D?’ but instead have a detailed conversation to understand your whole business and the projects you are undertaking. When you meet our specialist, it will feel like you’re talking to a colleague rather than your advisor.
Are there any triggers that GovGrant would look for in a logistics company to identify a potential claim?
There are far more activities that qualify as R&D than people would think – it doesn’t always have to be groundbreaking or particularly significant. Even time spent looking into why a job was less efficient than expected, making changes to existing IT or seeking ways to save money (whether successfully or not) could be qualifying R&D activity.