London, UK – January 2021 – Over the course of 2020, the government and HMRC have proposed or enacted a number of changes that will impact construction R&D claimants in 2021.
First, there is good news for large businesses that claim via the RDEC (Research and Development Expenditure Credit) scheme. The government announced in the 2020 budget that the tax credit for large firms will increase from 12% to 13%. The changes came into effect as of 1st April last year, so any businesses with qualifying costs incurred after that date will receive the enhanced rate when they submit future claims.
Tim Fitch, Director and co-founder of Invennt, one of the leading R&D tax credit claims consultants for the construction industry said, “They say that necessity is the mother of invention and this has certainly proved true over the course of this pandemic. We welcome the decision to increase the RDEC rate from 12–13% and we are delighted that large businesses will be able to recoup more of their investment in innovation during a challenging year.”
He adds, “Large businesses with year-end dates prior to 1st April 2020 should explore the scheme if they haven’t already. We are aware of a number of large businesses who would be eligible to claim but haven’t done so due to misplaced scepticism or perceptions of difficulty. Yes, it can be tricky to make a claim on your own but businesses like ours have streamlined processes that take the hassle out of making a claim and because we are a team of construction professionals, we have the expertise to write the entire claim for you.”
The change is expected to affect around 215 large companies in the construction sector and could represent an injection of an extra £68m of funding for the industry, which will be welcomed by business leaders in a year in which emergency spending to deal with business disruption has crowded out other investment.
Secondly, HMRC have recently proposed a change to the rules for SME R&D tax credit claimants that has been in consultation since early last year. The new rules have been designed to target those companies using corporate structures to claim a tax credits even though no R&D work was actually undertaken in the UK. In order to prevent such claims, the government has introduced a cap on the amount of the payable R&D tax credits that a loss-making SME can claim.
The proposed cap will limit the payable tax credit to 300% of claimants PAYE and National Insurance liabilities plus £20,000 if it comes into force. HMRC have confirmed that the cap would not be imposed on businesses where agency workers account for less than 15% of the claimed R&D expenditure and for companies with accounting periods ending before 1st April 2021.
Fitch said, “It’s worth remembering that the majority of businesses won’t be affected by this change. Any company claiming a payable R&D tax credit of less than £20,000 won’t face any change at all and most construction businesses that claim more than that won’t either. But it’s important to understand how this cap will impact your claim. Because of the way labour is managed within many subcontractors, some businesses will have a fairly low share of PAYE staff, so it is important to understand the implications but it’s also unlikely that they will account for more than 15% of the R&D expenditure. We deal with these issues up front to avoid any unexpected surprises down the track.”
Finally, HMRC have continued to fulfil their previously stated commitment to process 95% of claims within 28 days to aid businesses cashflow during the public health crisis. HMRC first made the undertaking in a letter to the Chartered Institute of Taxation in early April and have continued to meet the ambitious target throughout 2020.
Fitch said, “this is great news for construction claimants. Business’s in the industry need help to strengthen their cash position during this period and the R&D tax credit scheme is a great way for them to release additional working capital. We welcome the efforts HMRC have taken to process payments in a timely fashion over the course of 2020 and we are glad that this will continue in the new year.”
If you would like to find out how these changes might impact your business or would like to speak to Tim Fitch about making a claim contact him on 07816 517590 or Tim.Fitch@invennt.com.
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Invennt is the world’s leading specialist construction business consultancy. The business was founded by Tim Fitch and Brendan Morahan to help the construction industry get greater value from their investments. The company’s services include business strategy development, productivity & operational improvement, business development and marketing, collaboration and R&D tax credit claims.