R&D tax credits

In recent years there has been a renewed focus on property and construction technologies, with the industry rapidly evolving to produce innovation in several areas, a progression which has further hastened due to the changing ways of working imposed by the COVID-19 pandemic. From increased digitisation and emergence of collaborative construction solutions, to incorporation of advanced analytics and Artificial Intelligence (AI), the property and construction sector are increasingly utilising emerging inventions to tackle key industry challenges, such as, sustainability and ESG considerations, property management and increased construction productivity and quality.

Based on our experience Real Estate businesses are not as aware as other industries that all of these activities could potentially benefit from Research and Development (R&D) tax relief and therefore could be missing out on this valuable relief.

The recent changes within the industry has yielded improvement in several areas

• Construction methods – The need for improved and increasingly accurate construction methods has set the scene for huge growth in this area. From the use of Lidar for high resolution 3-D site imaging and the incorporation of augmented reality (AR) to overlay data with onsite information, to the combination of Internet of Things (IoT) technologies with AR, to enhance existing building information modelling (BIM) solutions, that result in enhanced construction management and workflow planning.
• Asset monitoring – With increased focus on sustainability there has been increased uptake of automation through IoT, a greater use of sensor technology and deployment of remote monitoring software. New technologies are emerging in smart infrastructure, which are capable of more accurately assessing structural integrity (during and post build) and the use of drone technology has enhanced capability to safely repair infrastructure.
• Fabrication – Several technologies have gained precedence with respect to modularisation of build processes and are complimented by investment in the latest material technologies such as 3-D printing. Moreover, research into materials that are thermally and structurally improved play a pivotal role in developing this area.

Aside from these areas of applied research, there is a great degree of experimental development within industry, yielding creative new techniques within construction and property that are catalysed by the need for effective and cost-efficient solutions for clients. These activities could potentially be eligible for research and development tax relief, while if you’re focussing on any of the above areas that are harnessing technological transformation in the sector you would be a clear beneficiary of (R&D) tax relief.

R&D tax relief

R&D tax relief is a government incentive which is intended to supplement businesses that are investing in technical expertise and innovation within the UK. Businesses that are developing innovative products and construction solutions which advance knowledge to overcome technical challenges / problems / uncertainties could potentially qualify. Accurately defining how a company’s activities align with the R&D tax relief criteria could produce significant benefit. For small and medium sized businesses (SMEs) projects costs could effectively be reduced by up to 33%, whereas, larger companies could reduce these costs by up to 13%. Many property and construction businesses see themselves as providing solutions to problems arising during construction, rather than focussing on the technical know-how arising from overcoming these constraints. Construction is one of the top three industries by revenue in the UK, however in 2021, the sector represented 8% of all R&D claims (significantly behind other high revenue industries such as IT – 22%, and Manufacturing – 20%), indicating that a great deal of potentially qualifying activity is overlooked in this area.

At Crowe, we have a team of specialists that will use industry experience to assess and identify activities that could be disregarded, and will work with property and construction businesses to prepare and submit robust R&D tax relief claims.

Typically ignored activities which could potentially qualify

• Development of innovative solutions to overcome site specific constraints – Such as, complex ground / soil conditions and novel construction requirements (compound acoustic building properties, intricate natural ventilation systems, constraints related to limitation of site-plant, automation of dangerous tasks, and, development of complex temporary works).
• Efficiency – Such as utilisation of novel materials to enhance thermal and structural properties, conducting thermal modelling and pollution calculations through incorporation of novel sensing capabilities, using sustainable manufacturing methods for building components.
• Methods – Development of modular building technologies and development and integration of software solutions to provide rich data at all points of the project lifecycle.

The benefit

Any development work where your technical team are developing solutions through an iterative process which is not readily deducible to the competent professionals, could qualify for R&D tax relief. For small and medium sized businesses (SMEs), this takes the form of an additional tax deduction calculated as 130% of qualifying revenue costs, and provides a net tax benefit of 24.7% for profitable companies. For loss making companies, a cash credit of up to 33.35% is available. For larger companies (over 500 employees and either €100 million turnover or €86 million gross balance sheet) the benefit is reduced but received as a research and development expenditure credit regardless of tax position at a net rate of ≈ 10.5%.

If you would like further information on anything discussed please contact Caroline Fleet, Said Bile, or your usual Crowe contact.