Sector - Finance & Legislation

R&D tax relief in the construction industry

While many people in the construction industry will have heard of R&D tax relief, they’ll often think it’s not applicable to them and instead is more relevant to IT and pharmaceutical companies doing things that ‘everyday businesses’ don’t do.

This isn’t true. The reality is R&D activity extends far beyond those in lab coats; in fact, it’s available to companies in every industry, including construction. The only thing that matters is whether the company in question is developing new products, services or systems – or materially improving existing ones. If it is, then R&D tax credits are available.

Unfortunately, as reported by HMRC, less than 1% of UK companies eligible for R&D tax credits ever make a claim because of their complexity and the misunderstanding as to what constitutes qualifying activity.

Of those companies that did make a claim, according to the most recent figures provided by HMRC, the construction industry only accounted for 2% of them – only 380 claims out of a grand total of 18,965.

Tax windfall in London

Fortunately, not all companies in the construction industry are missing out – some are more clued up than others. For example, a construction company based in Vauxhall, London, recently received a staggering £171,000 in R&D tax relief (which accounts for approximately 20% of the initial investment undertaken by the business in research and development).

Costs included the design of bespoke fixings to accommodate the extreme weight of stonework features, developing bespoke lifting machinery and designing ways of accommodating unique architectural design requirements.

As with all R&D tax claims, the company can use this to help to reduce their corporation tax bill or they can claim it in the form of a cash lump sum as a reimbursement from HMRC due to an overpayment of tax.

It’s worth pointing out that most R&D tax specialists operate on a ‘results-based’ basis, and only charge a fee once the tax benefit has been identified. This means that there is no risk and no up-front cost for a construction company that uses them.

Oh, and it’s vital that any construction company that thinks it might be eligible of claiming R&D tax relief acts quickly. The reason for this is that R&D tax claims can only go back two tax years, meaning they must be made within two years of the expenditure being incurred.  It’s important to remember though, that as long as R&D activity is being undertaken they will be eligible to claim each year.Mark-Tighe

Mark Tighe, Managing Director of RD Tax Solutions.