Overview

With the increase in HMRC compliance checks into claims for R&D Tax Relief over the last couple of years, the construction sector has been under heavy scrutiny. There have been numerous horror stories of companies submitting claims, the claims being paid out, the adviser taking their fee, and then HMRC enquiring into the claim and clawing back the benefit, often with the adviser disappearing without reimbursing the fee to the claimant company.

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This has understandably left construction companies uncertain about what sort of projects they can and can’t claim for, with many being discouraged from claiming altogether.

What Qualifies?

So if you’re a construction company what sort of projects actually do qualify for R&D Tax Relief? As per HMRC’s Guidelines for Compliance, the following examples of qualifying projects are provided:

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“A construction company plans to build a high-rise structure on a given site. The ground conditions are not well understood. More information is needed to design the foundations. Extensive use of known surveying techniques and technology is needed. This is not qualifying R&D expenditure. This is because no advance in science or technology has been sought. Though technology is used to resolve an uncertainty and the company’s own knowledge is advanced.

Frustrated with the amount of time taken, the company starts a project to develop an appreciably improved method of survey. The company adapts, in a non-routine way, remote sensing technology developed for use in archaeology and combines that with data analysis software used in the oil industry. This improved method of survey is an advance on the current state of science or technology in the field of surveying. The planning and development of the new technique is a qualifying project. Once the company has resolved the uncertainty of how to create the improved method of survey, by showing the improved method works, the advance has been achieved. The qualifying work ends at this point, even if associated work continues.”

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A key element of this project is that it is methodology-based, which can be an area often overlooked when companies review their potential qualifying R&D activities. The project seeks a technological advance in the field of surveying and faces various technological uncertainties in achieving the advance, including system uncertainties surrounding the best way to combine the individual components of the methodology. The guidelines go on to say:

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“In the same construction project, a standard method of construction cannot be used because of access restrictions and the results of the ground survey. Research is carried out to find existing alternative methods, but none are suitable.

A new solution is needed which requires a technological advance in the field. A project begins. A temporary cantilevered structure, which has never been used for this purpose, is designed. Further technological uncertainties are identified during construction. These require the design to be adapted to be able to achieve the advance sought by the project. The planning and development of the novel structure and the extra work to overcome non-trivial uncertainties during construction are qualifying sub-projects.”

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This R&D project is more tangible as the advance results in a physical structure. However, the fundamentals remain the same: the project seeks to achieve a technological advance in a field of science or technology and faces technological uncertainties

What Doesn't Qualify?

So we’ve looked at examples of qualifying projects, but what kind of projects do not qualify?

• Developing a surveying methodology that improves upon the company’s current in-house capabilities but does not seek a technological advance in the industry as a whole.
• Developing a unique but readily deducible from publicly available information foundation solution for a site with challenging ground conditions.
• Any project developing something “unique,” “bespoke,” or “novel” that does not require a technological advancement in a field of science or technology or face technological uncertainties in doing so.

Summary

In summary, while R&D Tax Relief within the construction sector has faced significantly more scrutiny in recent years, provided your projects satisfy the fundamental criteria of seeking a scientific or technological advance and facing technological uncertainties, it may still be highly worthwhile to explore.