Tax relief for green fleets

Sophie Said - Menzies Accountant

Sophie Said – T&L Specialist

Anthony Lalsing - Menzies Accountant

Anthony Lalsing – R&D Tax Specialist

With climate change on government agendas, and clean air zones being rolled out in cities and towns across the UK, many bus and coach companies are looking to invest in greener technologies. What many operators may not be aware of however, is that investing in this way could create a chance to leverage R&D tax relief.

Ultra-Low emission zone

To meet the World Health Organisation’s guidelines and comply with the EU’s Directive on air quality, the Government will be implementing an Ultra-Low Emission Zone (ULEZ) in London in 2019, with additional zones to be created across the country through 2020.

Restrictions may apply

The restrictions will apply to all vehicles but with differing effects. For example, some will be charged and drivers will have to pay a fee to enter the zones should their vehicle not meet the specified environmental standards. These measures could possibly lead to increased uptake in public transport services creating a number of ways that operators could capitalise on this, by ensuring that their own vehicles are eco-friendly.

Outside of clean air zones

Increased uptake may be possible by improving the efficiency of routes and training drivers to operate vehicles in ways that will help minimise fuel consumption and emissions, whilst tracking their progress through monitoring software.

Compliance is key…

To make sure services are compliant with the incoming restrictions, some operators may wish to invest in electric or hybrid vehicles. In some parts of the country, these services are in operation already, although some operators are concerned that the infrastructure needed to support such services is not widely available. Additionally, operators may be unwilling to invest in a new fleet, while they are still using vehicles on lease-hire, under agreements which may not end for a number of years.

…although potentially costly

The most pressing concern is the expense associated with an entire fleet transformation, especially considering that the asset value of non-compliant vehicles will have reduced. This could put cash flow at risk, particularly for small and medium-sized operators. However, there is a possible upside and the investment could grant openings for fiscal savings.

R&D relief available

Research and development (R&D) tax relief is currently available through two schemes:

Option 1 – One is for SMEs with less than 500 employees and either a turnover of under €100 million or a balance sheet total under €86 million.

Option 2 – The second is for larger companies and groups, which are entitled to the Research and Development Expenditure Credit (RDEC).

SME Scheme

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The scheme allows companies to deduct an additional 130% of qualifying R&D expenditure from their qualifying taxable profits, while the RDEC provides a taxable credit for 13% of qualifying R&D expenditure. Businesses will be allowed to claim the relief if they can prove that they have worked towards making an advancement in technology or science. They can do this by creating or enhancing a product or process.

Eligibility criteria

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Eligibility criteria for the tax relief centers on resolving difficulties, so businesses should ensure there is some level of uncertainty involved in the development process. Even if a project isn’t successful, relief can still be claimed as long as an attempt at innovation can be demonstrated. While R&D is traditionally associated with scientific industries such as pharmaceuticals, it can be leveraged by businesses in other sectors for such things as new solutions and technological advancements.

Low and zero-emission R&D fund

Despite a £106 million R&D fund announcement to encourage investments leading to the take up of low and zero-emission vehicles, awareness of R&D tax relief is still relatively low in the transport and storage sector, just 0.8% of total R&D claims came from the sector in 2016/17.

New Technologies

For bus and coach operators, ‘enhancement of process’ could establish the way buses are driven and any improvement to services through the use of new technologies. For example, this could include investing in electric vehicles, implementing emissions monitoring systems or introducing new tracking or seat-booking apps.

Collaborative R&D

To make a claim for tax relief, operators would not necessarily have to own the intellectual property associated with their improvements. Collaborative R&D recognises situations in which two or more parties may have worked together to improve product or process. In this case, each of them could have access to tax relief. Even if an operator isn’t involved directly in the innovation process, there might still be an associative cost reduction available.

Additional benefits

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If an organisation is in the process of procuring new technology, and is aware that the manufacturer is claiming R&D tax relief, then they might be able to factor this into negotiations and reduce the price as a result.

Many bus and coach companies are keen to implement cleaner, greener technologies but lack the resources to make this happen. Greater understanding of R&D tax relief and the opportunities it presents could help them to make the changes necessary, while protecting their profitability.

Posted in Blog, Transport & logistics