- Potential for industry to make annual R&D Tax Credit claims totalling more than £1 billion, unlocking funding for innovation called for by Farmer Review.
- SMEs able to receive up to a third of all R&D expenditure back from HMRC.
- Download Invennt’s Free Guide to R&D Tax Credits in Construction
A lack of awareness about what counts as Research & Development in construction means companies are missing out on millions of pounds in tax rebates.
The R&D Tax Credit Scheme is a Government incentive designed to encourage innovation in UK industries, with claims via the scheme totalling nearly £2.5 billion last year.
However, out of an industry of 290,000 businesses, only 480 construction companies made a claim via the scheme in 2014-15.
Despite contributing 7% of UK GDP, construction accounts for just 0.9% of total R&D Tax Credit claims, with the industry averaging just £23 million per year over the past three years.
The recent Farmer Review of construction asserts that the low level of claims made via the R&D Tax Credit Scheme is evidence of construction’s lack of innovation.
But after nearly three years of 100% success in making R&D Tax Credit claims for construction clients – including one medium-sized engineering company claiming £664,000 over the past three years – Invennt director Tim Fitch argues that construction is innovative, and the problem is actually one of perception of what R&D means.
“Unfortunately, most people think that “real R&D” is carried out in laboratories by people in white coats,” says Tim Fitch.
“But whether you’re overcoming specific ground conditions, adapting equipment, creating new processes or developing better, safer, or greener methods of construction, you are almost certainly undertaking R&D.”
Even if innovation accounted for just 1% of UK construction’s turnover – and Invennt’s work with clients has shown it is typically several times this – then for an industry worth more than £145 billion per year, that is potentially over £1 billion in R&D Tax Credit claims that could be made by the construction industry every year.
Invennt director Tim Fitch says that calls in the Farmer Review for the industry – especially the housing sector – to invest more in innovative products and processes such as pre-manufactured and volumetric construction could be instantly realised if companies started claiming R&D Tax Credits for the work they are already doing.
“Invennt’s work has shown that every day on projects up and down the country, innovative solutions are devised to overcome technical challenges,” says Tim Fitch.
“If companies were to actually claim R&D Tax credits for the work they are already doing, this could unlock a huge wall of cash to further invest in the innovation that the Farmer Review calls for.”
Construction companies wishing to make R&D Tax Credit claims can do so via one of two schemes, depending on their size:
- The Research and Development Expenditure Credits (RDEC)
- The Small or Medium-sized Enterprise (SME) Scheme
Companies claiming via the SME scheme can receive up to a third of all their R&D expenditure as money back from HMRC.
“There are 289,000 construction companies in the UK and of these only 260 are classed as large for the purposes of R&D tax credits,” says Tim Fitch.
“These large businesses are less than 20% of the turnover of the whole sector (£145 billion in 2015). SMEs therefore make up 99.99% of the construction industry by number and 80% by turnover. If SMEs properly claimed for the R&D Tax Credits they are owed, it could revolutionise the way the industry thinks about innovation.”
To find out more about how construction companies can claim via either the RDEC or SME scheme, click the button below: