Making the most of tax incentives in the industrial and logistics sector

Tax on profits is possibly one of the most frustrating and unproductive business costs because management has limited say over the amount and no control over how the money is spent.

Fortunately, however, there are tax breaks available to encourage business investment and ease the burden.  These are intended by Government to be claimed and are seen as legitimate by HM Revenue.  So, they are a great way to minimise tax bills in a low-risk way.

There are a couple of key tax reliefs available to businesses in the industrial and logistics sector – capital allowances and research & development relief.

Research and development relief

Research and development (R&D) relief is a generous tax relief for companies that carry out R&D. On the face of it, this perhaps does not sound very relevant for the industrial and logistics sector, but many companies are surprised that the definition of R&D, for this purpose, is much wider than the traditional view that R&D is just done by technicians and scientists in white lab coats.  

For tax purposes, R&D occurs when a project seeks to achieve an advance in science or technology, which can potentially be in any industry. Technology is the practical application of scientific principles and knowledge. And the activities that contribute to achieving that advance, through the resolution of uncertainty, are R&D.  In other words, something a company is doing, or paying someone to do, to solve a ‘head scratching’ technological problem that a competent professional in that field would not be able to do easily without carrying out a systematic project to work it out. In a logistics and supply chain management context this can include many works involving technological uncertainty and advances for the business, such as process automation and improvements, or developing software to track freight or deal with information.

R&D relief is available for revenue expenses incurred on R&D work, including staff costs, agency workers, subcontractors, software licences and water, fuel and power.  The tax deduction is 230% of the money spent.  Or put another way, every £10,000 spent on qualifying R&D generates an additional tax deduction of £13,000 (because the actual £1,000 cost can already be written-off for tax in full as a business outgoing). This saves an extra £2,470 of tax at the current 19% corporation tax rate.

Claiming capital allowances and R&D relief helps ensure the right amount of tax is paid on business profits in a reduced risk way.  But like many areas of tax the rules can be complex to prevent abuse, so it is important to take care.