Making the case for Research & Development (R&D) tax claims in the construction industry
Construction output in the UK contributes £117 billion per annum to the economy making it the second largest sector but it languishes near the bottom when it comes to claiming valuable R&D tax credits.
According to HMRC’s latest figures [1], of the £2.25 billion R&D claims made by SMEs in 2017-18, just £90 million was claimed by construction companies across 1,790 claims. This represents just 4% of the overall R&D tax credits awarded each year to SMEs as part of the SME R&D Scheme.
Anecdotal evidence suggests that one of the reasons behind this anomaly is that the construction industry doesn’t see the opportunity around R&D tax breaks and is consequently missing out on a valuable government incentive with the average claim size running at approx. £53,475 for the SME R&D Scheme.
All too often, it seems that business owners in the construction sector regard their approach to solving technical problems as just part of the routine day-to-day activity of a typical construction project that doesn’t qualify as R&D but this isn’t always the case.
The construction sector is constantly changing and evolving with new regulation driving significant opportunities and risks which, in turn, opens up R&D claims potential.
[1] Source: HMRC R&D Tax Credits Statistics October 2019
10th September 2020
Stuart Grimster, who heads up Old Mill’s Property & Construction team says ‘We often see companies that are dealing with areas of technical uncertainty which is essentially the key requirement for R&D tax credits and it’s really just a question of helping our clients to identify the areas where a claim can potentially be made. Since R&D tax credits were first introduced 20 years ago, in the region of £27 billion in tax relief has been claimed by UK businesses to date and, frankly, compared to other sectors, the construction industry is missing out.’
R&D tax credits have been designed to encourage more UK businesses to invest in science and technology innovation. If you can demonstrate you have sought to overcome a scientific or technological uncertainty, then there’s a good chance you’ve conducted qualifying R&D.
It’s also worth remembering that even if your R&D didn’t go to plan or you didn’t get the outcome you intended, the claim remains valid and HMRC can still reward you for your efforts.
A good place to start is the government’s Construction Sector Deal [2] which explicitly refers to R&D tax credits as one way to help construction firms fund projects making construction greener, safer, smarter and cheaper.
The kind of eligible activities worth exploring whether it’s worth pursuing a claim would include:
- Investigating and using new materials
- Adapting and repurposing traditional materials
- Using combinations of materials in unique ways
- Adapting machinery to use in different ways than its intended purpose
- Developing and applying energy-saving techniques
- Overcoming traditional challenges in new ways
- Creating efficient construction techniques
- Cutting-edge infrastructure design
- Developing safer methods and practices
- Developing and implementing energy-saving techniques or eco-friendly materials
This isn’t an exhaustive list by any means but maybe it will get you thinking more about whether there are opportunities within your business to package a R&D claim.
[2] The Construction Sector Deal aims to increase total research and development (R&D) investment to 2.4% of GDP by 2027.
A project or activity should meet the following criteria to be included in an R&D tax credits claim:
The project should seek to achieve a technological or scientific advance
An eligible project or activity should add to the current pool of technical or scientific knowledge in your sector. The advance doesn’t need to involve tangible assets but can also take the form of new knowledge. Any intellectual property that is disclosed in a claim would remain protected throughout the claims process and isn’t shared publicly.
The project had to overcome a level of technological uncertainty
In other words, it’s not known at the outset if the solution was either possible or how to deliver it. Even if someone else in the industry has already achieved the same thing, you can still potentially make a claim if the solution is not in the public domain and not obvious.
If your construction project meets this criteria you could qualify for total tax relief of 44p for every £1 spent.
Working closely with you we can explore whether you’re eligible to make an R&D claim and then advise and support you through the claim process by liaising with HMRC on your behalf.
Working with you, our team can help you uncover all of the eligible construction activities and qualifying expenditure your firm has carried out in recent years to maximise your claim and guide you through the entire process. Not only that, but we work in a way that saves you time, only needing an average of 6-8 hours of your time for a claim.
For more information on whether you may be eligible contact your Old Mill adviser or click here…