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 has 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, 2020).
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.
- 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?
It has been suggested that 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, sub-contractors, 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 by Dr Chris Lowe, an R&D technical analyst at Haleys Business Advisors (www.haleysba.co.uk).