Specialist contractors in the construction industry like Structural Metal Decks (SMD) are often aware of research and development (R&D) tax incentives, and may even be already making use of them. But we find that some will be missing out on significant untapped value by not understanding the full extent of their R&D.
R&D tax credits have the power to transform a business. In the construction industry, the benefit is often used to attract and retain new talent, and can also help to meet rising materials costs. For SMD, we doubled the size of their R&D tax credit claim by taking a more detailed and rigorous approach to identifying their R&D. This had a significant and positive financial impact.
We have made SMD far more aware of the full extent of their innovation. By helping to introduce record-keeping processes to more proactively record costs, we have laid the groundwork for preparing comprehensive future claims.
There is a misconception in the construction industry that everyday activities do not count as R&D. Because specialist contractors are solving complex problems every day, they often don’t identify their work as contributing to something new or improved. This misconception explains why many businesses shy away from the UK’s generous R&D incentive, which has been in UK tax legislation since the year 2000.
While £3bn a year is currently being claimed through the incentive, many businesses still don’t realise they are entitled to claim – or, they aren’t claiming as much as they could due to a lack of awareness about the full extent of their qualifying research and development.
Our client Structural Metal Decks (SMD) were just like this. A specialist steel floor and roofing contractor, SMD were claiming R&D tax credits with a Big Four accounting firm but not harnessing the full power of the incentive.
Their composite metal decking components are a critical part of the high-rise building construction process. The metal decks act as a form during the concrete pour. Once the concrete cures, the composite slab of metal and concrete creates a floor with superior strength, stiffness and safety.
It’s highly technical work and while SMD was already recouping some of the costs they incurred, they had found the process for making a claim arduous, as SMD’s technical director Jamie Turner explains:
“The old approach had involved us essentially writing our R&D claims report ourselves and submitting it to our advisers for review,” he explains.
“At that stage, we didn’t understand the breadth of HMRC’s definition of R&D. We were underselling ourselves in terms of the innovation we were actually doing.”
SMD’s situation is a common one. Many businesses err on the side of caution when dealing with HMRC. This caution is misplaced though, as the R&D tax credit is designed to incentivise innovation, not to curtail it.
Any company in any industry may be eligible, and HMRC’s definition of innovation is quite broad. The government defines R&D as ‘undertaking development activities that seek to achieve an advancement in technology.’
Crucially, this definition isn’t limited to a physical product like SMD’s composite steel/concrete decking profiles. It can be a process or a service, too. If you can clearly illustrate that your project goes beyond applying existing technologies and prove that it breaks new ground, you can claim R&D tax credits. And the R&D doesn’t have to be successful. In fact, failure actually shows an advanced degree of difficulty.
This broad definition of R&D is a good thing, designed to help more businesses claim, but it can be confusing. Many still struggle with knowing where to draw the line. That’s where a specialist R&D adviser like ForrestBrown comes in.
When ForrestBrown begins working with a business, our first step is a detailed interview process. These initial conversations are critical as they help us understand the client’s sector and the many diverse ways in which they innovate. It’s a collaboration that goes further than just an R&D tax claim: it’s about creating a culture of R&D.
ForrestBrown interviewed us for a good few hours. They spoke to heads of departments, some of whom were clearly doing R&D projects, and some – those out on jobs for instance – for whom it was less obvious. They quickly drilled down into the detail. Jamie Turner Technical Director, SMD
ForrestBrown’s emphasis is on getting the details spot-on. Our specialist technical experts ensure your claim is maximised and presented to HMRC in exactly the way they like it. Our insight comes from a team that includes two former HMRC inspectors; chartered tax advisers, lawyers and accountants; sector specialists and rigorous quality assurance experts. Nobody is better placed to work on your R&D tax credit claim.
But while the technical aspects of preparing a claim have to be perfect, the ultimate goal is to create a virtuous circle of innovation. A client, like SMD, should emerge from the process with a renewed understanding of all the diverse forms R&D can take. That’s the true power of working with a specialist R&D tax credit advisor like ForrestBrown.
In our experience, steel construction and manufacturing firms are well-positioned to harness the full power of R&D tax credits. Their R&D relates to the innovative use of steel and steel composites to overcome problems on site. This is often within the constraints unique circumstances in which only a bespoke solution will meet stringent performance standards.
Steel construction and manufacturing businesses can use R&D tax credits to meet the challenges of increasing materials costs and skills shortages. This could be a welcome boost at a time when regulation and technology continue to change the construction sector.
If you’re a construction contractor, you could be missing the full value of your R&D tax credit claim. Technology and legislation are driving change in construction and we have identified big opportunities for construction firms to receive generous tax credit payments.
If you’re a construction or manufacturing firm and want to find out more about working with ForrestBrown and the value we bring, contact us here.