Construction is one of the largest and most established industries in the UK, employing 3.1 million people or over 9% of the workforce. However, firms in the construction industry are not making the most of their eligibility to qualify for R&D tax relief. HMRC’s 2020 R&D Tax Credit Statistics Report revealed that construction firms made up just 6% of R&D tax relief claimants, potentially missing out on average savings of up to £70,000 per firm.
This gap is perhaps because many construction companies don’t see themselves as innovators: in their eyes, R&D is just part of the job. In fact, construction is an ideal candidate for R&D tax relief because it is always overcoming challenges.
Whether your firm works on residential, commercial, public sector, or infrastructure construction, keep reading to find out how you could potentially save thousands through R&D tax relief.
What is R&D tax relief?
R&D tax relief is a statutory tax relief incentive offered by HMRC. Businesses that are eligible for the scheme can claim a significant saving on their corporation tax.
To qualify, companies must be able to prove to HMRC that they have spent money on research and development. The R&D project must have overcome uncertainty to create an advancement in science or technology. If the solution is readily deducible by a competent professional in that field, then the project doesn’t qualify as R&D.
For small businesses, qualifying for HMRC’s R&D tax relief scheme means companies can deduct an extra 130% of their R&D expenses from their yearly profit. While firms tend to submit their R&D tax relief claims at the end of their financial year, you can claim for R&D up to two years in the past.
What is the purpose of the R&D tax relief incentive?
R&D tax relief is a way for HMRC to reward businesses for the sort of creative risk-taking required for innovation. As many businesses in the construction industry will know, projects don’t always go right the first time. This scheme helps ensure that businesses don’t lose money because of trying new things.
HMRC wants to encourage businesses to do more R&D because innovation is always good news for the economy. It can create more products that may be exported, boosts productivity, and create more jobs: all things that improve the overall strength and wealth of a country.
Why is R&D tax relief relevant to the construction industry?
Businesses from any sector can benefit from R&D tax relief, as long as they have worked on innovative R&D projects. Since R&D is assessed on a project-by-project basis, it doesn’t matter if the vast majority of your work doesn’t qualify.
As we mentioned earlier, businesses in the construction industry often qualify for R&D tax relief without realising it. Construction firms regularly overcome challenges such as the constraints of a site, time or space limitations, and environmental challenges, all of which may meet HMRC’s definition of R&D.
What sorts of things could be R&D in the construction industry?
Here are some more specific examples of the types of R&D projects that firms in the construction industry may undertake:
- Exploring new materials
- Improving environmental friendliness
- Increasing energy efficiency of a building
- Making processes or materials safer
- Improving fire safety
- Making the construction process more time-efficient
- Creating bespoke solutions (such as for historic buildings or limited spaces)
What is an allowable expense?
Only certain R&D costs contribute to a reduction in corporation tax under the R&D tax relief scheme. These are known as ‘allowable expenses’.
Allowable expenses for construction R&D tax relief claims are:
- Staff costs (including salaries, pensions, and National Insurance)
- Costs of hiring technicians and subcontractors (up to 65% of the cost)
- Software (such as CAD or project management software)
- Consumable items, such as materials
How do I notify HMRC that my firm conducts innovative R&D work?
To make an R&D tax relief claim, you need to be able to explain all the complex elements of the innovation to HMRC. That’s why it’s beneficial to work with a consultancy that is experienced and familiar with how the construction industry works.
While R&D tax relief is technically a form of tax self-assessment, most construction firms choose to work with a specialist tax advisor. This makes the process much easier, and increases your chances of a successful claim.
If you choose to work with Hamilton Blake Consulting, we’ll prepare the report and submit any forms to HMRC on your behalf. All you need to do is describe your projects, in your own words, so we can assess which elements may be eligible for R&D tax relief. We’ll also get you to provide us a few details about the project, such as timesheets and invoices. We work under a contingent fee model, so you don’t have to pay us anything unless your claim is successful.
Get in touch to find out more.