Your Guide to R&D Tax Credits in the Construction Industry

March 5, 2024
Andrew Knowles

Does your business solve problems, modify or adapt things to get the job done, or is it in any way technically innovative?

If the answer to any of those is 'yes', you may be entitled to claim R&D tax credits under a UK government scheme. These tax credits are a repayment of corporation tax and the average claim in the construction industry is almost £60k. That's a £60k tax refund, delivering a welcome injection of working capital.

Statistics reveal that many construction businesses are not claiming R&D tax credits, despite there being high levels of innovation and problem solving in the industry. This means that many firms are missing out on a tax rebate that could be worth many tens of thousands of pounds.

You don't want your business to be one of those that's not taking the tax credits that it's due. The total of claims by construction companies in 2018-19 was £175m, which represents many different firms involved in many different construction projects.

Basic Eligibility Requirements

Don't make the mistake of assuming the R&D tax credits scheme doesn't apply to the work that you do. The basic eligibility requirements are:

  • Company is subject to UK corporation tax.
  • Business creates parts, products or processes that didn't exist.
  • Business modifies existing products or processes to create something new.
  • Some experimentation was required to create or modify something.
  • The result of the creation or modification was a commercially viable solution.

Construction often involves innovation. To deliver a contract you may be required to solve problems that you've never encountered before. While you consider problem solving as just being part of getting the job done, you may also be performing research and development that qualifies for tax credits.

If you're not sure whether your work qualifies, it pays to ask a tax credit expert for their opinion.

Activities that qualify for tax credits

The government set up the R&D tax credits scheme in order to encourage and reward innovation. Many UK businesses are world leaders in innovation, which provides a massive boost to the UK economy.

While the tax credit scheme has paid out hundreds of millions since it was set up, statistics show that many companies are still not taking advantage of it. These businesses are innovating with tools and technology but they're not claiming back the credits they are due.

This is often because businesses are focused on getting the job done and don't consider their work to be making an advance in science or technology - which are the basic requirements for making a claim.

Examples of projects where innovation has been required, and which led to a successful tax credits claim, include:

  • Projects with unusual scope, requiring a new approach to solving engineering problems.
  • Conversion of historic buildings, involving innovation to combine new structures and pre-existing structures.
  • Use of non-standard construction materials.
  • Environmentally friendly or lean construction processes.

If any experimentation has been required, or if you've consulted an expert to solve a problem, it's possible that your project has involved an element of research and development.

The benefits of R&D tax credits

The cash benefit of a successful claim under the R&D tax credits scheme can be sizeable, with the average claim being £57,000. This can come either as a reduction in the corporation tax bill or as a cash payment.

The amount is based on qualifying costs. The costs that can be included in a tax credit claim include:

  • Salaries, wages and other staff costs.
  • Cost of relevant subcontractors
  • Expenditure on software.
  • Expense of developing prototypes.
  • Cost of consumables used in the research and development process.

Many of these costs can be apportioned where the full expense was split between R&D and non-R&D activities.

In addition to the cash benefit of the tax credit scheme, it also encourages your business, and others, to invest in innovation. This helps you remain competitive in your industry.

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How the tax credits process works

Claiming a tax credit from HM Revenue and Customs (HMRC) can be a demanding process, particularly if you're not working with experienced professionals familiar with how the scheme operates. 

The first step is to identify whether any of your activities qualify as research and development in line with the scheme. These activities must have been undertaken sometime in the last two completed financial years.

Having identified one or more R&D projects, such as where a product was created or a process improved, you must then calculate all the costs associated with each project.

Completing the HMRC application process involves writing up a technical narrative that describes the project and completing the necessary form. All this is then submitted to HMRC.

It can take up to three months for your claim to be processed, and up to another month to receive payment if one is due. Therefore, it makes sense to initiate the process as soon as possible.

We help you with R&D tax credit claims

Our role, as business finance brokers, is to help companies like you raise the working capital you need to keep going and to keep growing. This includes helping you maximise your opportunity with R&D tax credits.

Your company may well have completed a number of R&D projects over the last few years, but to you they were just doing business as usual. You could be entitled to thousands of pounds in unclaimed tax credits.

If you are owed tax credits it will probably take a few months to complete and process a claim. Taking action today means you will receive the funds sooner.

Our business finance specialists talk to businesses like yours every day, supporting them through making a tax claim. Get in touch today.

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Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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