Architecture and R&D tax credits

Famous Catalonian architect Antoni Gaudi once said “Anything created by human beings is already in the great book of nature.”

As an architect who consistently brings ideas to the table, you may not be aware that your creative approaches to problem-solving are also seeking – or resulting in – scientific and/or technological advances. This can attract significant tax relief which also  supports cashflow, growth, and investments in new staff, software, or equipment, while also enhancing your firm’s reputation.

In this article, we will explain how R&D tax credits might be available to architectural development work, share some examples of R&D activities in architecture, explain the eligibility criteria and how to claim.

What is the R&D tax credit scheme in the architecture industry?

The R&D tax credit schemes for the architecture sector are no different from those available in other industries.

This is because the government definitions of research and development have been purposefully drafted to be broad enough for companies of all sizes and sectors to claim – as long as their projects meet the relevant criteria.

There are two main types of R&D relief. One is specifically for small and medium-sized companies (SMEs) which often attracts higher rates of relief. The other is for larger companies (known as the RDEC scheme); the large-company scheme can also accommodate certain SMEs under certain circumstances. You need to be a limited company to qualify for either.

The SME scheme is for businesses which employ fewer than 500 staff and have either less than €100m turnover or a balance sheet below €86m.

From April 2023, the SME scheme  allows you to deduct an extra 86% of your qualifying costs from your annual profits in addition to the normal 100% deduction. This makes a 186% total deduction.

If you are loss-making, you can claim a tax credit worth up to 10%.

In the 2023 Spring Budget, the government announced a new intensive SME R&D tax credit for which SMEs can claim back £27 for every £100 of qualifying costs. To achieve this higher rate, you need to be loss-making and spending at least 40% of your total expenditure on R&D.

The other scheme is called the Research and Development Expenditure Credit, or RDEC for short. From April 2023, this allows you to claim a tax credit of 20% against qualifying R&D expenditure.

If you are profitable, you can use it to reduce your tax liability and if loss-making it is available as a cash payment.

RDEC is mainly used by companies which do not meet the SME qualifying criteria (so larger companies), or SMEs that have been subcontracted to do R&D activity on behalf of a larger company.

Eligibility criteria

Let’s look at HMRC’s wider definition of R&D and how this may be applied to specific projects in architecture.

What HMRC are looking for from architects (or any industry) is that:

• You are a limited company subject to UK corporation tax.
• You have carried out projects which had an uncertain outcome – in other words you did not know whether what you tried would work.
• Your projects sought to go beyond the known and readily available modes of using science and/or technology. Though these projects needn’t have been ultimately successful. An R&D project is likely to be one whose solutions were not ‘readily deducible’ by the people tasked with solving the problems.
• You are up-to-date on your accounts.

It does not matter whether your projects were ultimately successful or not, projects carried out on behalf of clients are also eligible.

What architecture projects qualify for R&D?

Considering the wide range of potential applications, how could the above criteria be implemented in architectural R&D projects? Here are some suggestions to inspire your innovative thinking.

Examples of R&D activity in architecture potentially include:

• You need to develop a new material or process to imitate the form or function of a part of an historic building.
• You have been challenged by environmental constraints when trying to achieve certain performance parameters, such as thermodynamics or sound insulation and had to experiment to overcome these challenges.
• You are using existing materials in new ways and do not know at the outset whether it will work.
• You are creating designs for a site where non-standard construction methods must be used and you must propose new solutions to progress the project.
• You are designing a non-standard integration of sustainable solutions into your architectural plans.

If you are unsure and want to check some of your specific activities, contact our team of experts.

What costs qualify?

There are many operational costs that you can include in your architect’s R&D tax credit claim, which can be divided into four categories.

Staffing costs – These are often the biggest component of a claim. For staff working directly on an R&D project, you can include gross salaries and wages, employer’s national insurance and pension contributions. You can also claim for support staff who work directly on an R&D project (but not if they would have done the same job anyway). External agency workers can be included too if they specifically worked on a project (but only 65% of relevant payments can be claimed).

Consumables – These are materials which are used up or transformed by your R&D. This includes a suitable proportion of the costs of utilities like electricity; any materials or components which went into the creation of prototypes; as well as chemicals or fuels if used in your processes.

Software and other technology – Any software which is directly used in R&D activities, whether licensed or purchased, can be claimed. Additionally, recent changes have expanded the eligibility to include data and cloud computing costs as well.

Subcontracted R&D – Within the SME scheme, you can include 65% of relevant subcontractor costs in your claim. If you are using RDEC though, there are some limitations on which types of subcontractor can be included. They must be one of a charity, higher education institute, scientific research body or health service organisation.

What benefits are there for architects claiming R&D tax credits?

The main benefits of claiming R&D tax credits to you as an architectural firm derive from the positive cashflow you can generate, either through reducing your tax liability or receiving a cash injection. To illustrate what this could mean for you, on average our clients get a £73,000 cash boost to their business per annual claim.

It’s up to you how you choose to utilise the cash windfall, but we often see firms using it to reinvest in their business. This could involve hiring new specialised staff, upgrading premises, or investing in new software and equipment.

Looking beyond the immediate financial benefit, becoming more innovative may also lead to you undertaking more interesting work and therefore attract better talent or even win awards.

How to claim

It is simple to get started and our team of technical experts will handle the complex aspects of the claim. Take our five-minute eligibility test to see if you qualify for R&D tax credits today.

When you claim the R&D tax credit for architects you want to get the balance right between claiming as much as can be justified but not overclaiming. To do this you want the robust processes and experience of a specialist adviser.

At Kene we have assembled a distinguished team of engineers, chartered tax advisers and science and technology PhDs. We provide the in-house expertise to capture the intricacies of your architect R&D claim and ensure it is as valuable to you as possible without over claiming. This is demonstrated by our impressive average SME claim percentage, which is 28% larger for our clients compared to the industry standard.

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