R&D Tax Relief
In September 2017, HMRC published its annual R&D tax credit statistics. These showed that over 170,000 claims have now been made, generating over £16.5 billion in tax relief. Construction claims represent less than 3% of this total by volume, and less than 2% of relief claimed.
These last two statistics are startling given the extent of innovation and development within the construction industry. So, why doesn’t the construction sector claim more R&D tax relief? There are six most commonly cited reasons:
We aren’t doing R&D
We hear companies say this every day, usually because they don’t understand the breadth of what can be claimed, they find it hard to articulate the technical challenge in their work, or simply that they regard solving challenging problems as routine.
Many companies who describe themselves as not doing R&D are undertaking eligible activity, and just need help articulating it.
We don’t have the time
This is both the most significant barrier and the easiest to overcome. Making a claim does not have to be onerous and there are methodologies that can simplify the process, using information that is readily available in most businesses.
An average claim for a medium sized company usually needs less than 10 hours of effort from employees.
We don’t understand the rules
Companies often tell us that they don’t know where to start when looking at R&D relief.
For first-time claimants it can seem like there are several sets of rules that are difficult to apply, whilst in other cases companies feel that their work might meet some eligibility criteria but not fully meet others. Working out what is eligible activity and what is not can be a daunting task for the uninitiated.
Few businesses have personnel who are experts in R&D tax relief and finance teams can find it challenging to navigate the rules on expenditure. Not all R&D costs qualify for relief and the rules can seem complex.
Sourcing external support is often a good solution to these challenges. Whether you are making your first claim, are looking for a new partner, or would simply like a review to increase your confidence, seeking external assistance can provide invaluable support
We cant take the risk
Understandably, companies are often concerned about the consequences of “getting it wrong” and becoming embroiled in lengthy discussions or formal HMRC enquiries.
In our experience HMRC approach R&D relief positively and actively encourage businesses to submit claims. They are happy to conduct supporting discussions when issues arise and freely offer technical advice when needed.
Providing that the claim has been constructed sensibly, has been done on a reasonable and conservative basis financially, and illustrates clearly why the activity claimed is eligible then the vast majority of claims are straightforward and will meet HMRC’s requirements with ease.
We don’t have the right info
This is a common problem, particularly in small and medium-sized businesses that lack project or cost tracking tools.
Fortunately, it is another easy problem to solve, and there are several approaches that can allow claims to be made even when detailed data isn’t available.
We can’t afford to
It is a common misconception that making an R&D claim is an expensive exercise. Its not! Companies have the option to develop their own claim documentation which is very low costs, or can seek the services of an accountancy firm or specialist provider.
Whilst expert advice carries a cost, it reduces the risk of a claim to near zero as any professional firm will help remove any ineligible activities or costs that do not qualify.
Further, agreeing a contingent fee ensures there is no financial risk in making a claim, as the fee only becomes due if the claim for relief is successful.
So what can be done?
Working with a specialist provider to explore R&D claims is the obvious solution to these challenges.
Agreeing a contingent fee keeps costs controlled, and with deep technical understanding and experience across numerous claims a specialist provider can ensure that effort is minimised whilst benefits are maximised.
Over the last ten years ela8 has helped numerous companies in the construction sector claim millions of pounds of relief, Buildoffsite recommends us as their preferred provider, and we have supported many members in making claims.
We have also produced a guide for Buildoffsite members covering the key aspects of the regimes which is available as a download or hard copy at www.ela8.co.uk