Most business owners in construction have undoubtedly heard of research and development tax relief, but they’ll generally think it’s the preserve of pharma companies and other blue chips doing things that ‘everyday’ businesses don’t.
This, however, is a myth that needs to be shattered, as R&D activity is not just limited to those in white coats.
“Less than 1 per cent of UK companies eligible for R&D tax credits ever make a claim”
The truth is R&D tax credits are available to businesses in every sector, including building and construction.
Ultimately, what matters is not the size of a company or the sector it’s in, but that the company in question is developing new products, services or systems – or materially improving existing ones.
If it is, then R&D tax credits are available.
Sadly, according to HMRC, less than 1 per cent of UK companies eligible for R&D tax credits ever make a claim because of their complexity and the constantly changing legislation in this area of tax.
Unfortunately for them, this means they could be potentially missing out on a tax windfall of tens of thousands, or even hundreds of thousands of pounds.
Of those companies that did make a claim in the year 2013/14, the construction industry only accounted for 2 per cent – 380 claims out of a grand total of 18,965.
One company based in Salford recently took advantage. It instructed us to carry out an audit to see if it was eligible for R&D tax relief on work it had carried out on the development of a sophisticated and fully integrated service management software to make its day-to-day operations easier.
“£100,000 was nearly a quarter of what the company had initially invested in R&D activity”
After carrying out a detailed investigation, we quickly identified that it was eligible, and within a few months the company was told it would be receiving nearly £100,000 in tax relief.
Clearly we’re not talking pocket change here; in fact, this £100,000 was nearly a quarter of what the company had initially invested in R&D activity.
Need to know
Importantly, R&D tax benefits only apply to those businesses that are liable for corporation tax.
They can help to reduce a corporation tax bill or be claimed as a cash sum as a reimbursement from the HMRC due to an overpayment of tax.
Oh, and it’s vital that if you think you may be eligible for claiming R&D tax relief then you need to act quickly, as R&D tax claims can only go back two tax years.
Mark Tighe is managing director at RD Tax Solutions