Labour aims to achieve 100% clean power by 2030, with the manifesto outlining the Government’s clear intentions to invest in green energy, sustainable manufacturing and innovative technologies – aiming to achieve clean energy by 2030. In addition to wanting all new builds to be environmentally friendly, Labour are also aiming to retrofit existing housing also.
Housing is a major contributor to emissions, with data revealing that in 2022, emissions from residential buildings accounted for a fifth (20%) of greenhouse gas emissions in the UK. Construction companies face a number of challenges, meaning that experimentation and creative thinking are important and how they contribute to sustainability.
Innovation and creativity are essential in the construction industry, especially when it comes to building sustainable homes. Approaching home builds with innovation and creativity helps to address challenges such as climate change, energy consumption and decrease in resources. New ideas can also lead to more efficient building processes and energy saving features, allowing for greener homes.
As an industry, construction makes the fourth-most R&D tax credit claims, with 4,000 claims registered in 2022 but there are still countless firms not taking advantage of the scheme to help keep their financial performance healthy annually.
Which sustainable projects are eligible
R&D tax credits are granted to businesses to reimburse them for their investments that aim to develop new products, processes or services – or improve existing ones. But, even though a company may be the first to apply or utilise a certain technology in the UK – they may not be able to state what they had to do to make it work to improve sustainability.
Companies will need a dedicated person or accountant to review their projects to correctly identify R&D and ensure applications are not rejected due to incorrect information. Construction projects often involve complex technical aspects, such as materials, methods and innovations. A dedicated reviewer can expertly assess these elements from a technical standpoint to ensure that the project qualifies for R&D tax relief.
Another benefit of having dedicated professional reviewing projects is that R&D projects require detailed documentation of the project, and things like research, development and innovation activities. A dedicated reviewer can aid in collating and organising the correct documentation, making sure nothing is missed.
Properly understanding what makes a process eligible and being able to communicate this in your application clearly can be challenging.
Changes to R&D tax claims
The R&D tax credit scheme has come under severe scrutiny for perceived abuse which has led to instances where genuine applications have been wrongly refused. Though R&D tax claims are common in the construction industry, changes to how claims are processed over the last few years have resulted in more refusals than ever before.
HMRC is now being tighter with approving applications, meaning that more people are less likely to claim for their R&D, so ensuring applications are accurate is more important than ever.
Stricter oversight of the scheme in the past two years could mean that fewer businesses are incentivised to make applications or take risks with innovation if they won’t be able to recoup any of their investment.
Whilst the government has tightened controls of the scheme to stamp out abuse, genuine claims are still being processed and aiding construction businesses to limit their losses. For future applications, this highlights the importance of understanding the requirements of the scheme and making a rigorous, clear application.
What businesses can do to ensure their projects are eligible
For work to be eligible, it needs to fit specific criteria. You need to clearly demonstrate that you are trialling and developing systems with the potential to improve performance and evidence that you are developing bespoke solutions and adapt to changes in legislation or requirements in the industry.
You also need to understand the two schemes available for R&D tax credits: SME tax relief and expenditure credit. The first scheme is targeted at SMEs and offers increased reimbursement for loss-making SMEs, but there are stipulations. Businesses are required to have fewer than 500 employees, achieve a turnover of less than £84.5 million, or have a balance sheet total of less than £72.6 million.
Innovation’s role in preventing loss
Construction businesses are facing many challenges to their bottom line at once, but utilising creative strategies to innovate can help mitigate losses while also committing to sustainability – that will benefit not only the industry but also the country as a whole.
Although refusals have increased because the government is trying to tackle abuse and false claims, the R&D scheme is going to be an integral part of reaching the government’s net zero targets. Construction companies should take the time to properly understand the application process to ensure all legitimate claims are accepted.
This article was written by Ryan Sian ACCA, managing director of RandD UK, R&D tax credit specialists.
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