How we live, work and enjoy space evolves with every new generation and the construction industry continually responds with innovative solutions. New plans or ways of using space demand that experts to come up with a way of achieving beautiful design. Those head-scratching moments and the continuing development of infrastructure come from R&D. Simply, if it’s not a routine task or maintenance, there is a fair chance that it qualifies as R&D.
At the heart of it, R&D for tax purposes needs to satisfy two core tests:
R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology, for example:
The know-how of experienced contractors is an ever-developing knowledge bank. It is often taken for granted, but it’s their expertise that make new spaces possible.
Using a broad categorisation, there are five areas which R&D claims apply to in Construction; staff costs, subcontractors, externally provided works (EPWs), consumables e.g. heat, light and power.
The majority of most R&D tax relief claims are based around staff costs. This includes people directly involved with the activity and others who are indirectly involved.
An example of direct costs would be a specific solutions architect – they tend to be defined, technical roles who are the doers of the project. A common misconception is they have to be scientists and academics, this is incorrect. If they are directly contributing to the R&D effort, then there is a good chance their costs can be included.
Indirect staff are people who are also involved in supporting the R&D project such as administration, finance, and personnel activities where they enable the R&D to happen. These costs are usually overlooked but have a rightful place in the claim.
Where you may not have the expertise in house, you may rely on a third party to help with part of the R&D process. These costs are qualifying expenses for the R&D tax relief scheme. For overseas subcontractor costs new rules apply for accounting periods starting on or after 1 April 2024.
Like subcontractors, you may not have directly employed staff but want to have resource for a particular role who act in the same way as employees – i.e. under your care custody and control. These costs can form part of the claim. For overseas EPW’s costs new rules apply for accounting periods starting on or after 1 April 2024.
The proportion of heat, light and power that is used for the R&D project is also qualifying expenditure.
Any software used directly in the R&D is a qualifying cost. For accounting periods on or after 1 April 2023 costs related to datasets and cloud computing can also be claimed.
The SME and RDEC schemes will merge into a single scheme for accounting periods starting on or after 1 April 2024.
With the SME R&D tax credit scheme you can currently claim tax relief of up to 33% on your qualifying R&D expenditure incurred up to 31 March 2023. After this new rates will apply.
Read more
The Research and Development Expenditure Credit (RDEC) rate has increased over the years, companies can get over 10% of their R&D expenditure incurred up to 31 March 2023 refunded. Then this will increase up to 15%.
Read more
Using glass in buildings is no new thing, but how glass is used keeps evolving. For instance, the designers of the Pinnacle building in the city of London wanted to create a beautiful curved glass top – but the engineering seemed impossible. The challenge was to have single panes of curved glass that could sustain the wind tolerance at the planned height. Whilst the project was abandoned, companies have continued to develop solutions and systems that could potentially achieve this breath-taking effect. One of the most significant challenges is how you test these innovations before they get to site – these are all great examples of R&D in the construction sector.
Our client has been a leading supplier of aggregate materials to the south east for decades and has seen the rising demand in resin products for both residential and commercial developments. The challenge they faced was installing the resin in wet conditions which can be difficult and create a poor fix. Our client started to experiment with different material blends and types of resin to see if they could achieve a product that was more weatherproof on install. For the past 18 months, they have continued to create and test different solutions and now entering the next stage of development.
