Jenny Tragner, director at research and development (R&D) tax credit consultancy, ForrestBrown, explains how UK construction SMEs aren’t making the most of R&D tax credit incentives.
R&D tax credits are designed to encourage greater R&D spending, leading in turn to greater investment and innovation. Last month HMRC released its annual R&D tax credit statistics, showing an overall increase in the number of claims made by SMEs in the UK year-on-year. However, the average value of claims has stagnated. Why? Perhaps some SMEs are nervous about the process, others are unclear on what they can claim for, and some are getting the wrong advice.
Importantly HMRC’s statistics highlighted that the construction sector is not making full use of R&D tax incentives. Construction represents some 7% of the UK’s GDP. As a technical industry, R&D is widespread, although the full potential claim isn’t always achieved by construction firms.
There are at least 250,000 construction SMEs in the UK, but latest data revealed that under 1% (1,940) are making use of R&D tax incentives. Even accounting for the large proportion of sole traders in this industry, we’d expect more firms to be eligible and claiming.
The sector is aware of R&D tax credits but in our experience, construction companies may not claim because they don’t view everyday problem-solving activities as R&D.
Generally, if you’re investing in overcoming problems on site, or doing something faster, more cheaply, safer or more sustainably; you may qualify for this valuable funding. To deliver the full benefit that your investment deserves, all projects should be reviewed by an expert.
If you still don’t see your projects as R&D, reflect: have you encountered any complex problems? If yes, it’s likely R&D has taken place, especially if you’ve developed a unique solution. That said, it doesn’t need to have been a commercial success to qualify for R&D tax credits.
If you’ve experimented with new or improved materials, building processes and techniques your business could benefit.
At ForrestBrown, we see R&D in all different types of construction firms. Recently a specialist contractor was asked to supply the mechanical and electrical services for a facility that carries out neurotrauma research. The facility had to remain fully operational while the new systems were installed, so a temporary HVAC system was developed as a work-around. You might consider this technical challenge to be an everyday activity, but the impact was profound. This is one of many ways that companies find ways to overcome problems on site.
The average construction SME claim is worth £50,279, and we regularly see construction claims worth more than £1m. The cash R&D tax credits deliver can be invaluable for driving growth in a business. Particularly when optimised to work as efficiently as they can.
Consider how you might reinvest this money back into your business to grow it and establish a culture of R&D. In a sector constrained by increasing material costs and skills shortages, R&D tax credits represent a valuable source of funding. The cash can help overcome challenges like supply-chain complexity, the expense of materials and plant. It can even help fund new technicians with the required skills, either full-time or temporary.
They are transformative when used cumulatively year-on-year. This becomes a virtuous circle of innovation and occurs when the credit offsets further R&D. For example, an apprenticeship scheme to train the technicians of the future. That’s the pathway to STEM skills proliferation, and the key to consigning productivity issues to the past.
The best R&D tax credit claims deliver both a maximised benefit and robust methodology that stands up to HMRC scrutiny. Seek specialist R&D tax credit advice to ensure yourclaim is correct and fully maximised. Only expert advisers will identify all qualifying areas and guide you through the submission process, making it as straightforward as possible to grow your business.