What’s good for business is good for the wider economy, so the government is supporting business growth. To encourage this, the government offers incentives for innovation and efficiency, including tax relief for research and development (R&D) projects across various sectors.
One of the more useful, but not often discussed, policies is the tax relief on R&D projects which is available for a large number of sectors. It incentivises businesses to find innovative solutions to overcome scientific or technological problems or boost efficiency by embarking on research projects that advances the baseline knowledge or capability within the field.
Here, we take a look at R&D tax relief, who’s eligible and how it can be used to improve the efficiency and sustainability of transport and logistics businesses.
As part of a £20.4 billion investment into R&D announced in the October 2024 budget, the government has invested in tax relief for projects seeking advancements in a field of science or technology. Generally, companies that resolve a difficulty or challenge leading to an advancement in either field, could well be eligible for tax relief through the R&D process.
For accounting periods beginning on or after 1 April 2024, HMRC’s new R&D Expenditure Credit (RDEC) regime replaces the previous Small and Medium Enterprise (SME) and RDEC schemes which have been combined into one streamlined approach.
Under the new regime, a single RDEC credit rate of 20% applies. This credit is taxable at the main corporation tax rate of 25%, resulting in a net tax benefit of 15% for profitable companies. For loss-making businesses, a notional tax rate of 19% can be applied, increasing the net benefit to 16.2%. While these rates are less generous than the legacy SME scheme, they still provide meaningful on-the-ground relief for British businesses, particularly for companies that integrate R&D into their long-term growth strategies.
Alongside the new RDEC regime, the government has introduced the Enhanced R&D Intensive Support (ERIS) scheme. This secondary regime targets loss-making SMEs whose qualifying R&D expenditure accounts for at least 40% of their total trade and operating expenditure for expenditure incurred on or after 1 April 2023 (decreasing the intensity threshold to 30% for accounting periods beginning on or after 1 April 2024). Designed to cushion the impact of reduced rates of relief, ERIS enables these R&D-intensive businesses to deduct an additional 86% of qualifying expenditure for tax purposes and surrender relevant trade losses that are available at a rate of 14.5% for a repayable cash credit.
However, it’s important to clarify that not all loss-making SMEs will benefit under ERIS. Where companies may miss out due to unexpected fluctuations and comparatively higher total expenditure HMRC has included a “year of grace” provision to account for exceptional spending that might skew a company’s intensity ratio temporarily.
To qualify for R&D relief, a project must seek an advance in a field of science or technology. The advance must have an impact not only on the business itself, but an appreciable improvement in the wider field of science or technology.
Transport and logistics companies may introduce a new online booking or tracking system by developing their own software develop a more efficient fleet management plan, or even invest in green technologies to help lower emissions. These types of activities could directly contribute towards a more efficient and sustainable operation, and therefore they may have the potential to meet the criteria for R&D tax purposes.
Innovations do not necessarily need to be a brand-new invention - it can replicate other alternatives, so long as the solution or know-how is not already publicly available. The improvements may include:
Effective from 1 April 2023 until 31 March 2026, the Enhanced Capital Allowance scheme ensures businesses can write off the full cost of plant and machinery investments, fully deducting the cost against profits in the first year of purchase.
This extends into business vehicles, such as vans, company cars and lorries, so it is something transport and logistics companies need to be aware of if they’re to make the most of the financial support.
If you are looking for professional advice, support or guidance on how your transport and logistics business can best utilise government-supported tax breaks such as R&D, Patent Box or capital allowances, the Duncan & Toplis team of experts are on hand. Please do not hesitate to contact our team for more information.
