Research & Development Tax (R&D) Credits – Can They Apply To The Construction Industry?Written on June 11, 2019 by Kirk Rice LLP
The Question:
I run my own business in construction and there are regularly technical obstacles that have to be overcome during the building process. It has been suggested to me that my company may be able to claim for Research and Development (R&D) credits from HMRC for work undertaken to resolve these issues when they arise. Is that correct?
Kirk Rice LLP answers:
Research and development (R&D) by UK companies is being actively encouraged by the Government through a range of tax incentives. The Government views investment in R&D as a key to economic success. It is therefore committed to encouraging more smaller and medium sized (‘SME’) companies to claim R&D tax relief.
R&D credits are available to most businesses and not just the construction industry. However, recent statistics show that less than 2.5% of all R&D tax credit claims came from the construction sector which is surprising. There are plenty of misconceptions throughout all business sectors relating to this type of tax relief. There is an inaccurate view that R&D is only done by scientists in a laboratory, and this simply could not be further from the truth. Qualifying work can take place in the construction sector during the design phase and groundworks for example.
R&D relief can only be claimed by companies that have incurred expenditure on qualifying R&D projects that are relevant to the company’s trade. A project should address an area of scientific or technological uncertainty and be innovative. The innovation needs to be an improvement in the overall knowledge in the relevant field of research, not just an advancement for the company. General examples of qualifying projects could include those which:
- increase the life of a battery
- create a new type of material in an item of clothing
- develop new spark plugs for use in an existing engine.
An important point to appreciate is that the activity does not have to create something completely new from scratch. It could include:
- developing a product that exists but where there is some technological uncertainty which can be improved
- making an improvement to a product or process e.g. exploring new cost effective materials which will allow a product to perform better.
Benefits for R&D claimants
With the SME R&D tax credits scheme, rewards can include 130% tax relief on qualifying costs from their yearly profit, which is on top of the normal 100% deduction, to make a total 230% deduction. For SME’s making losses, these credits can be surrendered in return for a payable tax credit of 14.5%.
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Any reader interested in discussing claiming R&D tax credits can call 01344 875 000, 01252 960 500 or 0208 789 8588 or email info@kirkrice.co.uk.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current legislation which may change in the future.
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