Specialist tax advisors can help companies to identify and claim for potentially eligible projects
The R&D tax relief/credit scheme was introduced by the UK government in 2000 to incentivise investment in innovation and reduce financial risk by providing a potential cost saving of up to 25p for every £1 spent on eligible R&D activity.
While there have been year-on-year increases in claims, the construction sector is still not realising the full financial and competitive benefits of the scheme.
In 2018-19, only 1% (3,340) of construction firms made a claim for research and development (R&D) tax relief, with the sector making up just 5.6% of all claims (HMRC, Research and Development Tax Credit Statistics September 2020).
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It is recognised that small profit margins previously stifled progress, restricting investment in innovation. However, the sector is now being transformed by a number of factors, including:
- Regulatory/client focus on reducing energy use and carbon emissions;
- Adoption of digital technologies (e.g. BIM);
- Growth of offsite manufacturing and use of modular building techniques; and
- Increasing popularity of integrated design and construction procurement systems (e.g. design and build).
So why are more companies not making R&D tax relief claims?
Many companies remain unaware of the tax relief scheme or have misconceptions over which companies and what activities qualify as eligible R&D. It is also recognised that many firms may view potential qualifying R&D activity as simply part of their usual work routine.
As a result, many companies may benefit from the support provided by specialist R&D tax advisors who can help identify potentially eligible projects, write technical reports
(a requirement of an R&D tax relief claim) and determine qualifying expenditure (including staffing, subcontractors, consumables and software).
When considering the level of support (and associated cost) required, companies should consider the potential complexity of R&D activities, experience of their accountant and the time available for staff engaged in eligible activity to produce technical reports.
The information in this article formed part of a CIOB member webinar given in December 2020 by Chris Lowe, an R&D technical analyst at Haleys Business Advisors.
