In 2018 the GDP of the UK construction industry was worth £109bn.
In the last set of statistics issued by HMRC the construction industry issued 1,365 R&D claims which represented R&D expenditure of £525m. By utilising the R&D Tax Credit system these firms where able to recover £80m.
84% of these claims came from SME’s.
The average claim for R&D qualifying expenditure across all industries in the UK in 2017 was 1.19% of UK GDP. Within the construction sector this figure drops to 0.48%. The R&D intensity of the EU28 by comparison claimed 1.96%, China 2.13%, OECD 2.4%, USA 2.8%, Japan 3.2% and Korea 4.6%. The aspiration for the UK is to match the average R&D intensity of the OECD.
There is a perception that developing new techniques and products to overcome project issues is just part of the construction process – in reality it is research and development and should be reclaimed.
The Construction Index recently published that the average margin of the Top 100 Construction firms in the UK is 2.5%. Ernst and Young also produced a reported where they highlighted the decline in margins since 2007.
Given the challenging construction environment in which we operate and the downward pressure on margins every effort should be made to maximise profitability and corporate cash-flow.
Tax credits are calculated by the sum of the allowable R&D expenditure multiplied by 130% then multiplied by the corporate tax rate. If the firm is loss making it may be possible to obtain a cash repayment equal to 33% of the allowable R&D expenditure.
Below is a summarised example of the tax credits a company could receive
Based on current construction industry average qualifying R&D expenditure claim %
Turnover: £10m
Qualifying expenditure @ 0.48%: £48,000
Tax credit received: £9,120
To generate this net profit the company would need to turnover an additional: £364,800
Based on current UK industry average qualifying R&D expenditure claim %
Turnover: £10m
Qualifying expenditure @ 1.2%: £120,000
Tax credit received: £22,800
To generate this net profit the company would need to turnover an additional: £912,000
Based on UK aspiration for qualifying R&D expenditure claim %
Turnover: £10m
Qualifying expenditure @ 2.4%: £240,000
Tax credit received: £45,600
To generate this net profit the company would need to turnover an additional: £1.82m
As the examples illustrate there can be significant advantage in claiming this credit.
Companies can potentially back date claims for the preceding two accounting periods and over 48 jurisdictions offer some form of R&D tax incentive including the US and Canada.
Urban Project Services works in partnership with senior management, project teams and accountants, to undertake the time-consuming research and complexities required to identify, assess and document qualifying Research and Development needed to make a claim under the scheme.
This article contains information of general interest about current legal and accounting and tax issues and does not provide legal or accounting or tax advice. It is prepared for the general information purposes only. This article should not be relied upon in any specific situation without appropriate legal, accountancy or tax advice.
