Why the civil engineering sector must build its R&D claims on solid foundations

A landmark judgment against HMRC last autumn offers much to learn for civil engineering companies considering R&D tax relief.

James Dudbridge is Director and Gareth Randle is Engineering Sector Specialist at ForrestBrown

With the reality of tight budgets and ongoing resource and supply chain issues, innovative civil engineering projects risk dropping off priority lists. R&D tax relief may offer a vital lifeline to companies wishing to resist this change, but with increasing scrutiny from HM Revenue and Customs (HMRC), cases should be treated with caution.

A recent rise in bogus R&D claims has triggered an increased number of inquiries from HMRC, increasing the risk that genuine claims will be challenged. Additionally, despite the ruling against HMRC in the Quinn tribunal case, where the debate centered on the use of multiple contractors and sources of finance, HMRC said it would continue to review the eligibility of customer-led R&D projects.

This is not to say that civil engineering companies should be discouraged from making a claim. R&D tax relief remains a valuable source of innovation funding, however, companies should be aware of the stakes and take proactive steps to protect themselves in the event of an investigation.

The risks of being wrong

The opportunity for significant tax relief naturally comes with a level of risk. If HMRC finds evidence of a claim that is incorrect or invalid, the consequences can be detrimental. Substantial sums may be required to rectify the situation and the reputation of the company and the likelihood of future claims being accepted may be seriously affected.

If HMRC discovers an error for a single claim, they can extend that assessment to claims dating back six years (and even further in the most serious cases), meaning the total amount assessed can quickly reach a potential crisis. for companies. In Quinn’s recent case, for example, £1million in relief was under the microscope at HMRC.

In a market where noise from unregulated agents can make it hard to know who to trust, many claimants are unaware of the risks of making a bad claim. However, if a business knows how to get a correct deposit position and understands the mechanism required to protect its claim from investigation, it can be confident that its cash flow and reputation will remain intact throughout.

How to make sure a claim stands up to scrutiny

Getting a correct claim starts with choosing the right advisor. Don’t assume an advisor is regulated, or that they have the company’s best interests at heart – there are plenty of bogus advisors out there, so it’s essential to review their credentials. In addition, the civil engineering sector faces unique and difficult obstacles. , it is best to work with a company that has specific industry experience.

Claims should be a collaborative effort. Leaving all claim preparation to an agent can make the process vulnerable to knowledge gaps, while sharing detailed information about business operations will ensure all nuances are incorporated into the claim.

A one-size-fits-all approach will not withstand an investigation by HMRC and therefore the more questions an adviser asks the more confident the business can be that a claim will be valid. After all, it is better to be challenged by an adviser before a claim is only made by HMRC once it has been submitted. Also consider that big conversations are happening at the political level that could affect future decisions, so even if a company has already successfully filed a claim, the boundaries may have changed and therefore should not be relied on to copy work -to stick on.

Finally, keeping records throughout the preparation of complaints and more broadly on how information is recorded on key systems is also essential. If there is a detailed written record of the thought processes, any concerns can be resolved if HMRC starts asking questions.

Overall, the R&D tax credit relief helps businesses be innovative, forward-thinking and progressive, helping them stand out despite the current challenges in the industry. Yet, while many complaints pass through the system without being investigated, failure to properly consider a complaint with the assistance of an adviser or to consider the possibility of an investigation could leaving the business out of pocket and impacting their ability to access aid in the future. . Proper preparation and relative caution will open up assured opportunities to flex the technical muscles and attract the right customers and talent to the business.

*James Dudbridge is a Director and Gareth Randle is an Engineering Sector Specialist at ForrestBrown

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