As a proportion of GDP, construction is the UK’s second largest sector. Yet when it comes to claiming R&D tax credits, construction ranks second from lowest in the table. Is it really due to a lack of innovation – or are construction firms missing out?
If statistics on R&D tax credits are taken at face value, construction companies don’t ‘do’ R&D. Construction firms account for less than 3% of the overall R&D Tax Credits awarded to UK businesses every year: a figure that’s at odds with construction’s place as the UK’s second largest sector.
Ask the vast majority of construction professionals and they will say the same thing: aside from the occasional research and development project, R&D just isn’t a significant part of the industry. A Mark Farmer report on construction sought to corroborate this, highlighting the industry’s lack of R&D claims as evidence that construction firms simply aren’t investing in innovation.
Culture and self-perception
There is a huge amount of R&D in the sector, but the industry’s culture is holding companies back from claiming. Companies are dealing with areas of technological uncertainty, the key requirement for R&D tax credits, on a regular basis and yet the perception of this activity as ‘workaday’ and ‘just part of the job’ prevents companies from identifying innovation within their business.
As such, most of the eligible R&D within building and construction businesses is hidden. While a pharmaceutical or technology company will have a specific budget dedicated to research and development, in construction eligible expenditure is often spread across a variety of different activities and departments.
We are speaking with a number of construction companies to ensure that they are not missing out on this valuable tax relief. A recent example is a business which is using a tried and tested construction method but is having to do it on a much larger scale than has been attempted in the past. As a result the company has had to consider new ways to resolve certain issues and problems, and this activity is qualifying R&D. If we had not reviewed the various different projects which the company is working on, then this could have got missed and valuable relief not claimed.
Communicating complicated ideas
When R&D is identified, it’s often found in the most technical areas of the business. As such, communicating projects effectively to HMRC can be difficult. Technical knowledge is improving all the time in HMRC’s R&D unit, but it’s still crucial for businesses to be able to communicate what technological difficulties were encountered, and what the company did to overcome them.