HM Revenue & Customs ("HMRC") has announced a clampdown in respect of R&D claims being in the construction industry.
Their data shows that 7,600 building firms made R&D claims in 2020 and 2021 worth £260m. Of these, only 38% were fully compliant. HMRC said that 18% of claims were non-compliant, with 44% being partially compliant.
In a recent statement, HMRC announced it was introducing several new measures to tackle non-compliant claims. These measures include requiring all claims to be made online and to be supported by an officer of the company, together with details of a tax agent associated with the claim. Other measures include, reducing the rates claimable, and if it is the first time the company is making a claim, advance notification to HMRC before doing so.
It is not all bad news however, as figures suggest that just 8% of R&D claims in 2022 came from the construction industry, with an average claim value of £46,347. This would suggest that construction firms should still make claims where they think they should do so.
What is R&D in construction?
Qualifying R&D in the construction industry includes:
- Developing structures from new construction materials
- Innovative usage of eco-friendly or sustainable materials or methods
- Adapting existing construction techniques to solve environmental issues or site-specific problems
- Innovating new methods of construction to introduce automation
- Integrating new or improved technology into buildings
- Modifying existing components and fittings into sites with different constraints
- Developing new or improved equipment
- Solving technical problems that may occur during a construction project
Any UK limited construction business can claim for R&D tax relief, with different types of R&D scheme depending on whether the company is an SME or large company. For the SME scheme, a construction company must employ less than 500 people and have a turnover of less than £85m or a balance sheet total of less than £73m. An SME's eligible R&D costs receive an additional 86% deduction when calculating the taxable profit.
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