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

What if you were told you could claim up to 33p for every pound spent on certain activities within your Construction and Engineering business? Thankfully, there’s a government incentive, put in place since 2000, known as Engineering R&D Tax Credit or Engineering R&D Tax Relief, which helps companies carrying out research and development achieve this.

The R&D tax credit incentive is formulated to reward enterprises that conduct research and development into new products, services and processes, or even improve existing ones.Due to the innovative nature of the construction and engineering industries, many projects do fall under this category of research and development. However, many construction and engineering firms are not aware of this scheme and miss out on the potentially huge benefits available.We’d like you to be able to get the chance to boost your research and development efforts, with a little help from the government. To help clear things up, we’ve explained exactly what R&D tax credits are and how they relate to construction and engineering firms.

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 acommercial 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.
• Subcontractors and freelancers.
• 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.