Construction & Engineering R&D Tax Credits: What Do They Mean?

Given the complexity and innovation often involved in construction and engineering projects, many firms could be undertaking qualifying R&D without realising it. However, awareness of the scheme remains low across the sector, meaning many businesses miss out on valuable financial support.

This article explains what R&D tax credits are, how they apply to construction and engineering companies, and why understanding the scheme could help you reinvest in future innovation and growth.

Eligibility

If your company is in the engineering sector and you have created or improved products, processes, services, systems or devices in the past two years, then there is a good chance that you are eligible to claim a significant annual pay-out through the government's R&D tax credits scheme.Many businesses are unaware of this opportunity to recoup funds. A common misconception is one of ineligibility, perhaps;

• You think your business is too small to qualify?
• Your latest R&D wasn’t as successful as you’d hoped?
• You think you don’t incur enough costs to make it worthwhile?
• Claiming seems too complicated and time-consuming to merit undertaking?

In truth, none of these thoughts need to deter you, as any developmental activity within a commercial or internal project does not need to successfully achieve the initial aims. Therefore, according to the HMRC definition, R&D activity in abortive projects can still be eligible. Also, alongside your internal projects, you can include work undertaken for a client.

What is ‘research and development’?

Another misconception is that the R&D tax credit incentives only apply to certain companies within the scientific sector - when that simply isn’t the case.The HMRC R&D requirements are broad and are very applicable to construction & engineering firms.However large or small your company is, if your business is taking risks in attempting to ‘resolve scientific or technological uncertainties’ then you may be carrying out R&D.Often, construction & engineering projects do fall into this category. Put in layman’s terms, if you’re not sure whether your project is scientifically or technologically possible, or you’re uncertain how to even execute it in practice, you could be ‘resolving uncertainties’, and as such, you could qualify for R&D tax credits.

Financial benefits

The financial benefits of R&D tax credit for engineering firms can be considerable. Up to 33p on the pound can be reclaimed, freeing up extra cash to be spent on other important projects.Being savvy to the opportunities awarded engineering R&D tax relief can help with cash flow, the purchase of assets or to fund research and development for further engineering projects.The R&D credits function by minimising corporation tax payable if profitable, or by receiving a cash credit if loss-making. The amount due is calculated after analysing qualifying expenditure.Find out more about our insights of R&D in the engineering industry.

The claim

When putting together an R&D tax credit claim, the types of expenditure assessed include:

• Staff, including salaries, employer’s NIC and pension contributions.
• Materials used up in the R&D process. E.g. steel beams used in a prototype rig.
• Consumables, including heat, light and power used in the R&D process.
• Software used to assist in the R&D process.