R&D Tax Credits in the Construction Sector

Micah Levy

Director, Innovation Plus

According to the government’s latest figures, there were 52,335 R&D Tax Credit claims filed in 2016-2017. The scheme paid out a total of £3.5 billion to companies that met the criteria of ‘R&D for tax purposes.

However, out of those 52,335 claims, only 1,940 were filed by construction firms, despite the fact that there are over 300,000 construction-based businesses operating in the UK.

It’s safe to say that the UK construction industry is losing out on many millions of pounds each year in unclaimed funds due to not taking advantage of the R&D Tax Credits scheme.

(What is the R&D Tax Credit Scheme?) *Sources: ons.gov.uk and gov.uk

The relevance of R&D tax credit scheme to the construction industry

Construction firms routinely face complex challenges imposed by unique site conditions, unusual build requirements, budget constraints, safety and regulatory considerations and even the conflicting priorities of all of these factors.

Many construction firms consider the resolution of these challenges to be a routine part of their operations, without realising that in many cases these types of activities enable them to claim significant funds annually through the scheme.

The eligibility criteria for claiming

A project or activity should meet the following criteria to be included in an R&D tax credits claim:

1. The project should seek to achieve a technological or scientific advance
   An eligible project or activity should add to the current pool of technical or scientific knowledge in your sector. The advance does not need to involve tangible assets but can also involve process improvements. Any intellectual property that is included in a claim would remain protected throughout the claims process and is not shared publicly.
2. The project had to overcome a level of technological uncertainty
   In other words, it’s not known at the outset if the solution was either possible or how to deliver it. Even if someone else in the industry has already achieved the same thing, you can still potentially make a claim if the solution is not in the public domain and not obvious.

Types of construction projects and activities that enable you to claim

The below list is only aimed at giving you a sense of the types of projects that qualify. Every construction project should be assessed for eligibility on a case-by-case basis.

1. Offsite and Modular Construction
Increasingly, developers and construction firms are embracing innovative offsite and modular construction techniques to help them to achieve time and labour efficiencies that were not possible before.

Offsite construction activities that are likely to attract R&D benefit include: Design or improvement of building systems, prototyping and manufacturing of new structure types and optimisation of building processes.

The experimental nature of these activities and the high levels of technical expertise that they require, make them a perfect fit for the R&D tax credit scheme.

2. Non-Standard Construction Materials

Manufacturers are continuously developing new construction materials to achieve better performance in specific areas and to enable buildings to meet certain requirements. Some examples of this are:

• Materials that are stronger and can bear heavier loads
• Materials that are lighter or that have a better strength-to-weight ratio
• Materials that have a smaller negative impact on the environment or that use recycled ingredients in their manufacturing
• Materials that have better thermal performance (I.e. they have better heat retention in cold weather or are better at expelling heat in warm weather).

For a construction firm that is the end-user of such materials, the eligible R&D may reside in the selection process of those material (e.g. feasibility studies, construction load analysis and experimentation) and how they have adapted the use of those materials during implementation.

3. Development of Building Information Modelling Systems (BIMs)

A construction firm that is beginning to adopt a BIM, may have to create new internal processes that will allow it to share its project data correctly. It may have to hire specialist consultants to facilitate BIM adoption or it may even have to invest in developing custom software that would allow its legacy systems to connect to the BIM. All of these activities have the potential to meet the criteria for claiming. The creation of BIMs and BIM-related software is a separate industry in itself. For more on this, visit Innovation Plus’ R&D tax relief for software development page.

4. Eco-friendly Construction and Lean Construction

Innovative construction methods that minimise the negative impact on the environment often enable construction firms to claim R&D tax credits. Eligibility can stem from developing either new or improved eco-friendly techniques, or appreciably improving existing techniques to meet unique project conditions. The R&D may also lie in solving challenging logistical and technical problems that can result from implementing these techniques. For example:

• Using sustainable materials such as recycled steel, glass or materials that have been claimed from dismantled buildings.
• Using eco-friendly materials such as concrete reinforced with timber, bamboo or other natural fibre construction materials like Hempcrete.
• Development of green walls, water harvesting systems or water purification systems.
• Reduction of waste and increasing the efficiency through new, lean construction processes

5. Other Indicators of Eligibility

• Creation or improvement of construction techniques to improve efficiency, durability, soil remediation or environmental sustainability
• Construction of dynamic structures such as retractable roofs
• Design, development and testing of temporary construction structures and construction equipment and tools
• Investigations that relate to the development of new material types such as metals alloys, concrete, insulation, plastics, glass and ceramics.

We have explored just a few scenarios of how construction firms are be eligible for the R&D tax credit scheme. If you are unsure of your eligibility or would like further information, you are welcome to contact Innovation Plus for an objective assessment at no obligation to you.