Logistics businesses miss out on R&D tax credits

London, UK: Logistics companies are missing out on an average of over £70,000 in R&D tax credit savings, says Dominic Bartholdi, head of business development at R&D tax credit specialists GovGrant.

HMRC data shows that less than a percent of UK R&D tax credit claims come fropm the logistics sector. For those that did claim, the average value was £70,588 in 2017-18.

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 Additionally, in many cases logistics companies are using outdated legacy systems and infrastructures which need bringing up to date,” Bartholdi says.

“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 specialist GovGrant

Global Cold Chain News asked Dominic Bartholdi, head of business development at R&D tax credit specialist GovGrant, to explain more.

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 apply?

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.