With the latest HMRC data showing just 1% of construction SMEs are making use of R&D tax credit incentives, Jenny Tragner, director at R&D tax credit consultancy ForrestBrown and member of HMRC’s R&D Consultative Committee, urges the industry to realise the full potential of R&D tax credits
R&D tax credits are designed to encourage greater R&D spending, leading in turn to greater investment and innovation. In October, HMRC released its annual R&D tax credit statistics, which show an overall increase in the number of claims made by SMEs in the UK year-on-year. However, the same story emerges again and again throughout the report: total claims are up, but the average value of claims is down.
Good news for construction
It’s good news that more businesses across a wide range of sectors are using these valuable incentives, but one can’t help but question why SMEs are making small claims; is it that they are nervous about the process; are they unclear on what they can claim for; or are they just getting the wrong advice?
One industry that is undoubtedly failing to make full use of R&D tax incentives is the construction sector. Construction represents some 7% of the UK’s GDP. As a very diverse industry, R&D is widespread, although the full potential claim is not always achieved by construction firms.
Untapped value
There are at least a quarter of a million construction SMEs in the UK, but HMRC figures reveal that less than 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 making a claim.
That’s not to say the sector is unaware of R&D tax credits in theory. In our experience, businesses in this sector may not be claiming because they don’t see their everyday problem-solving activities as R&D.
Generally, if you’re investing in overcoming problems on site, if you’re doing something faster, more cheaply, safer or more sustainably, it’s likely you could qualify for this valuable source of funding, worth on average £50,279 to construction SMEs. To deliver the full benefit that your investment deserves, all of your projects need to be reviewed by an expert.
If you still don’t see your projects as R&D, ask yourself: have you encountered any complex problems? If the answer is yes, it’s highly likely that research and development has taken place, especially if you’ve had to develop a unique solution.
Everyday projects could qualify
If you have experimented with new or improved materials, or building processes and techniques – it’s likely your business could benefit.
At ForrestBrown, we see R&D in all different types of construction firms: structural, civil and electrical engineers; materials experts and suppliers; HVAC businesses; housing developers; architects and construction manufacturers.
You don’t need to be reinventing the wheel
A recent fascinating example of R&D concerned a company that 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 had to be developed as a workaround. You might consider overcoming this type of technical challenge to be just everyday activity, but the impact for the research facility was profound. This is just one of many fascinating examples of how construction companies find ways to get around problems on site.
Given that the average construction SME claim is worth £50,279, we would urge the industry to wake up to the potential for R&D tax incentives to help them innovate. The cash they deliver can be invaluable for driving growth in a business, particularly when optimised to work as efficiently as they can.
Solve more problems
If you need further incentive, think about how you might invest this money to grow your business. Imagine a reliable cash flow from an established and credible source. Reinvested back into the business, a culture of R&D can take hold. In a sector constrained by rising material costs and a skills shortage, R&D tax credits represent a valuable source of funding. The cash can help you overcome challenges like supply chain complexity, the expense of raw materials and it can help you find new technicians with the skills you need.
They are powerful when used cumulatively year-on-year. We describe this as a virtuous circle of innovation and it occurs when the R&D tax credit is used to offset 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.
Grow your business
The best R&D tax credit claims deliver both a maximised benefit and robust methodology that stands up to HMRC scrutiny. With so much uncertainty in the sector, it pays to seek specialist advice to ensure your claim is correct and fully maximised. Only a specialist R&D tax credit adviser will give you the best chance of identifying all the qualifying areas and guide you through the submission process, making it as straightforward as possible for you to grow your business using R&D tax incentives.
Jenny Tragner
Director
Tel: +44 (0)203 519 5080
Twitter: Forrestbrowntax
LinkedIn: Forrestbrown tax consulting
