R&D Cash Tax Benefits for Property and Construction

The latest HMRC statistics indicate that in the year to 30 June 2017 a mere 705 property and construction companies claimed R&D cash tax benefits.

This means that many property and construction companies which are developing innovative building solutions are unaware they could claim research and development (R&D) cash tax benefits.

For those that did make a claim, the average cash tax benefits were:

• £61k for ‘small and medium sized enterprises’ (SMEs)
• £349k cash tax benefits for ‘large’ companies.

There are two R&D schemes

• SME R&D Relief and the Research
• Development Expenditure Credit, for larger companies.

SME R&D Relief

SMEs are companies where

• there are fewer than 500 employees (including other entities in the group structure, and any other entities in which a 25% interest is held), and
• either an annual turnover of less than €100m or a balance sheet total of less than €86m.

R&D tax relief is an additional 130% tax deduction beyond the 100% normally available. For every £100 of R&D spend, profitable companies can reduce their tax liability by:

• £26.00 plus the £20 normal tax deduction (up to 31 March 2017)
• £24.70 plus the £19 normal tax deduction (from 1 April 2017)

Loss making companies can cash in R&D tax losses at up to £33.35 for every £100 of R&D spend.

Research and Development Expenditure Credit (RDEC)

The RDEC is a taxable credit, but can be offset against a company’s tax liability. The net effect of this is a reduction in tax liability. The RDEC rate has increased from 11% to 12% with effect from 1 January 2018.

For every £100 of R&D spend there is an overall reduction in tax liability of:

• £8.80 (up to 31 March 2017)
• £8.91 (from 1 April 2017 to 31 December 2017)
• £9.72 (from 1 January 2018)

Loss making companies can also claim cash from HMRC.

Who can claim

R&D tax incentives are available to companies that are innovative where the company is:

• seeking to achieve an advance in the knowledge or capabilities in a field of science or technology, and
• in seeking that advance there are technological uncertainties or challenges to be overcome.

R&D in property and construction

R&D starts with a technical feasibility study, includes the main research and development activity, and ends when the prototyping and testing has been completed.

Construction projects are often costly and time consuming as you can see by the size of the R&D cash tax benefits being claimed - £61k for small and medium sized enterprises (SMEs) and £349k cash tax benefits for large companies.

Some examples of R&D activities that qualify in the property and construction sector include developing new, or significant improvements to:

• building materials
• building systems (e.g. reduced carbon emissions; heating and ventilation systems; intelligent building systems; health and safety requirements)
• the construction process (including cost and process efficiencies; improved tools)
• building information modelling
• cladding systems
• fire safety engineering and modelling
• heat and smoke detection and movement in buildings
• air conditioning and air handling systems
• systems to model and predict energy performance in the buildings
• solar and wind technology energy solutions
• scaffolding systems
• drainage systems

This list is not exhaustive.

Caroline Hunt, Director, corporate tax group