Companies in the construction sector could use research and development (R&D) tax credits to develop their innovation capacities without impacting their bottom line.
However, HMRC data released last autumn shows that the UK civil engineering industry lacks average savings credits of Â£ 70,000 per company, with the construction sector accounting for just under 6% of claims. UK R&D tax credit.
R&D tax credits are a tax break designed to encourage increased spending on research and development, in turn leading to greater investment in innovation. They work by reducing a company’s tax bill by an amount equal to a percentage of the company’s eligible research and development expenses.
SMEs and large companies in the UK can claim tax relief for a wide range of R&D activities, under programs administered by HMRC. Typically, a company that makes a successful application can recoup up to 33% of the amount it spent on qualifying R&D.
Many people have a misconception that R&D is only suitable for people who work in white coats, but the truth is that the term can be applied to any company that has done something innovative in the way it operates. or developed new ways of doing things. HMRC defines innovation as overcoming uncertainty – something that could not easily be worked out by someone who is a professional in the field. Even if innovation fails, it could still benefit from tax savings.
There are five broad categories that can classify civil engineering R&D demands: personnel costs, subcontractors, external works (EPW), software and consumables such as heat, lighting and electricity.
Given this broader definition of R&D and the tax benefits available, companies in the civil engineering sector could miss out on potential tax savings. There are some important considerations in determining whether an R&D activity qualifies for a tax credit claim and what action to take.
We are seeing that companies from all sectors have the potential to seek R&D tax relief in the UK. For tax purposes, the definition of R&D is so much broader than you might think.
We see the R&D activity qualifying in the innovative use of green or sustainable methods. R&D often leads to improvements in existing construction techniques to solve site-specific or environmental problems or to develop new products such as construction materials that are lighter, stronger, stronger or easier to process.
It can be difficult to identify compliant activities in the civil engineering and construction industry, but we know that businesses of all kinds are now benefiting from sophistication through technology. R&D tax claims can come from process improvements, production improvements, scalability, and quality control.
Even when companies are already claiming R&D tax credits, they may not have fully explored the potential of this demand.
Knowing what is a compliant R&D activity and what is not often comes with a level of uncertainty. A business might make smart and complex calculations, but being smart and knowledgeable isn’t always the same as solving problems to overcome uncertainty. Take the example of an engineer who uses tolerances, constraints and tables to specify a project. Squaring the circle can be tricky, but if you rely on existing knowledge in tables and standards, it doesn’t sound like R&D. If, however, you create new standards and tolerances – due to new material, new equipment, or a completely new customer requirement, this suggests that this could be qualifying R&D.
This can manifest itself in simulations, specific and iterative CAD models, designing prototypes, branching out and working with new variables. It really is the foundation of R&D. Plus, a failed project can be a sign that you are tackling new horizons.
The use of R&D tax credits has enormous potential and I urge the civil engineering industry to tap into this funding to better support future innovation.
- Dominic Bertholdi is Business Development Manager at GovGrant, R&D Tax Specialist
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