Your trusted adviser for R&D Tax Credits, Creative Tax Relief, and R&D Grants
Your trusted adviser for R&D Tax Credits, Creative Tax Relief, and R&D Grants
Written for our partners Trading Herald. Construction is one of those industries that massively lends itself to innovation. Find out more.
Construction is one of those industries that massively lends itself to innovation. From designing carbon-neutral heating systems to safer cladding and everything in between, construction companies constantly tackle research and development challenges. Even the most mundane daily tasks can involve R&D, which is why so many claims for HMRC’s R&D Tax Credits scheme are being made.
Latest government data shows that for 2019-2020, 5,995 R&D Tax Credit claims were made by the construction sector alone. The total pay-out was just over an impressive £400 million with an average claim value of £66,722. Certainly not money to be sniffed at.
R&D stems from those head-scratching moments that enable buildings to be built. One of HMRC’s top tax incentives, the R&D Tax Credits scheme was designed exactly with this in mind.
The UK government has long recognised the benefits of innovative company projects as a way of strengthening the economy. It therefore awards such work with a sizeable tax rebate (up to 33.35% in fact) to help cover eligible R&D costs.
The R&D Tax Credits scheme offers a cash injection that can contribute hugely to company growth. It’s a robust source of cash flow that helps give companies the financial confidence to engage in future innovation work. The resultant money can also be used in any way the company sees fit, from streamlining processes and recruiting additional technicians to sourcing new materials and testing prototypes. R&D tax relief essentially means the cycle of innovation can continue.
All UK limited companies can apply, with the relief administered either as a reduction in Corporation Tax or as a cash credit. The real plus too is that the scope of claimable projects and costs is incredibly broad. Everyday activities like developing new processes, techniques or materials is enough to put R&D tax relief within reach.
Even companies that have made a loss can claim. In fact, the same statistics also show that for the year ending March 2020, £7.4 billion was paid out overall in R&D Tax Credits. All this means firms working in construction should certainly be aware of the scheme and endeavour to claim each year where possible.
Almost 300,000 companies are connected to the construction industry. It’s an incredibly diverse sector that represents 9% of the GDP in the UK.
When it comes to specific claims themselves, each project is unique. However, the goal of all construction companies really boils down to delivering work that is built to the agreed quality, timeframe and budget. How this is done is where the solving of various technical and scientific unknowns really comes in. Even the smallest of companies can achieve R&D Tax Credits, with SMEs in the construction industry submitting claims worth an average of £57,000.
Just because the R&D Tax Credits scheme is generous, doesn’t make it easy to claim. Understanding if your construction project will definitely qualify - and the exact costs claimable - is much more complex than it seems. This is why a large proportion of companies use the services of an R&D tax consultancy.
Essentially, if investment has been made in technical or scientific challenges that weren’t easily solvable by a professional in the field, then R&D Tax Credits will likely follow. This is even the case if the project ultimately failed - we’re talking journey of discovery here, not final destination.
R&D is not always about reinventing the wheel; it can simply be about perfecting it. When considering bold innovative work, it’s easy to think of the really cutting-edge disruptive stuff. And of course, that does come into it. But often successful R&D tax relief claims aren’t as in-your-face-life-changing as you’d think. One example would be where a company is providing the mechanical and electrical services for a facility that is undertaking medical research. The facility needs to remain open and operational while new systems are fitted, so the construction company will therefore need to develop a temporary HVAC system. This is actually a fairly common one, and R&D Tax Credit claims for it can be substantial.
The most successful R&D tax claims result when a company has clearly demonstrated strong methodology (even under HMRC scrutiny), plus comprehensive understanding of qualifying expenditure. Companies should also plan for their R&D tax claim from the outset, rather than leaving it until last. This again is why it pays to seek expert advice to make sure a claim is watertight and fully optimised so no eligible costs are inadvertently missed out. After all, tens or even hundreds of thousands of pounds is at stake, which in today’s economy is even more crucial than ever.
Here is the article on Trading Herald.
Food and drink R&D (eligible under the R&D tax credit scheme) covers any project that aims to push the boundaries of knowledge and technology within the industry.
The government has published the Finance Bill 2023/24 covering the Merged Scheme and HMRC has recently provided more detail on the overseas restrictions and subcontracting rules and invited further consultation until 1st March 2024.
When the UK was still a member state of the EU, it was subject to European rules on state aid. Since Brexit, these rules have become more complex, navigating the murky waters of legislation across the English Channel.
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