September 27, 2021

The funding that construction companies may be missing

With ambitious housebuilding targets remaining in place despite the economic disruption and a growing focus on sustainability, construction firms can set themselves up for success by taking advantage of the full range of support available – some of which is widely underused in the sector and can make a real difference to both short-term cashflow and longer-term investment. Here, Victor Rouleau, Associate Director at Leyton UK, outlines key sources of funding that construction companies need to know about as the sector prepares for the post-pandemic recovery.

With ambitious long-term housebuilding targets and a growing emphasis from across the construction industry on improving sustainability, having access to the right financial support is crucial to set construction businesses up for success as we begin to plot a course towards normality following the upheaval of Covid-19.

Fortunately, there are government schemes focused on innovation that can deliver a much-needed financial boost in short notice. However, all too often these schemes are underused, with businesses missing out on thousands of pounds of cash that could make a real difference given the often-tight margins in the sector. Many businesses are unaware of the existence of these schemes, while others may not believe that they are eligible.

The R&D Tax Credits scheme is the most prominent example, allowing businesses to claim back large sums of their investment in innovation. Given the importance of R&D for the industry, this form of tax relief represents a major boost. Essentially any company that pays UK corporation tax is eligible to claim the relief if it carries out qualifying activities. The R&D work does not even need to take place in the UK as long as it is subject to UK corporation tax.

The relief pays out generously, with the qualifying costs multiplied by 230% to provide a reduction in a business’s corporation tax bill. In other words, for every £100 spent on qualifying R&D costs, the company is able to lower its corporation tax bill by a further £130, in addition to the £100 spent. For construction businesses, a wide range of activities are eligible for tax credits, potentially making a significant difference to short-term cashflow and enabling longer-term investment.

Material usage is largest area for claims in the construction sector. As the industry pushes for greater profitability, businesses are finding new ways to reduce their material use, use new materials and find innovative new methods of using existing materials to increase output. Post-Grenfell, there has rightly been greater pressure on construction companies when it comes to the choice of materials used in projects.

We are also seeing an industry and economy-wide shift towards embracing sustainability, which is increasingly reflected throughout the planning and construction process. Businesses redeveloping concrete to reduce carbon impact and applying energy-saving measures in new or unusual ways are all eligible to claim tax credits on this activity. In this respect, the scheme essentially rewards you for doing good.

Another area for claims is the adoption of building management systems, enabling areas like security and fire management to be integrated into the same systems. There has been more and more innovation in these areas in recent years and these systems are becoming increasingly widely used in a broad range of projects. The innovation required to integrate these systems into different projects can take significant investment in terms of time and money, but this work is likely to be eligible for tax relief as part of the R&D scheme, potentially opening the door to significant claims.

One final area that is ripe with opportunities to claim R&D credits is the integration of more advanced BIM processes into projects. As technologies like Construction 4.0 play a greater role in driving innovation and BIM level 3 becomes more widespread for major projects, we are seeing significant investment in innovation to ensure that the technology is fulfilling its potential. This investment is almost certain to be eligible for tax relief – as the technology is generally used on larger projects, it has huge potential in terms of being able to reclaim cash.

Overall, there are large areas of the construction sector in which eligible innovation is taking place. Much of this activity continues to go under the radar, but given the tight margins in the construction industry, claiming the full R&D support available is a no-brainer. With a typical margin of 2% in the construction sector, an R&D claim worth £10,000 delivers the same cash boost as winning a £500,000 job – and can be achieved in just a fraction of the time. By taking full advantage of the financial support available, construction companies can put themselves in the best possible position to capitalise on the economic recovery.

Victor Rouleau, Associate Director at Leyton UK