Uncovering R&D Tax Credit Opportunities in the Built Environment

R&D tax credits have come under heavy scrutiny in recent years. In a 2023 report , HMRC estimated that 16.7% of claims across both existing R&D tax relief schemes were either invalid or actively fraudulent. Given that their previous published estimate sat at 3.6%, the attention paid to these claims has multiplied.

The construction industry in the UK has had a particularly hard time with R&D tax credits. Despite  growth in both private and public new work increasing 16.8% and 13.1% in recent years, HMRC does not always see construction as inherently innovative, often considering its technological advances as routine.

While heightened vigilance has made taxpayers and some advisors wary, it has also justifiably highlighted the need for greater precision in identifying qualifying projects.

In the built environment, this means having the experience to differentiate confidently between everyday activities and genuine R&D efforts.

Here, Haines Watts R&D (NorthWest) Senior Technical Consultant Richard Lewis explains why the sector remains a prime opportunity for innovation and R&D compliance, as well as how the right support can help maximise successful claims.

Building Change in Construction

The built environment as a sector reflects the evolving needs of our society at large. As a result, benchmarks and techniques are constantly evolving in line with regulation, market needs and consumer demands. 

The Green Revolution

Sustainability is a driving force for innovation in architecture and construction, with industry benchmarks like Passivhaus setting ambitious targets for energy efficiency. These benchmarks challenge professionals to innovate, as they provide goals rather than prescriptive methods, encouraging new solutions for achieving net-zero buildings. This can include:

• New construction methods
• Materials and reuse
• Energy efficiency techniques

Materials and Methods

Alongside sustainability comes a new look at how and why we use certain materials and methods. We can see this in the rise of deconstruction, which is gaining traction over traditional demolition, promoting material reuse and supporting the circular economy.

Similarly, fire safety has become a focus of innovation post-Grenfell, pushing companies to explore new materials and installation methods that enhance safety without compromising efficiency or adding undue weight.

Preserving History

The restoration and adaptation of heritage buildings present unique challenges, requiring sensitive yet forward-looking approaches to balance preservation with modernisation. This might involve:

• Developing new materials that replicate the old
• Adapting structures for new uses while respecting heritage constraints
• Introducing novel processes and tools to overcome engineering challenges when dealing with old structures

Building Efficiently

With the drive to build more homes in the UK comes additional pressure to finish projects in shorter time frames, with smaller budgets, but with no compromise on function.

• Pressure to reduce construction timelines has pushed innovation in prefabrication and modular construction.
• Pre-built elements require reevaluation of the relationship between design precision and on-site realities, often requiring on-the-fly rethinks.

Who Can Claim R&D in Construction?

Identifying potential R&D activities in the construction sector requires an understanding of the design-to-completion chain and the specific roles different entities play within this ecosystem. An experienced advisor can support in discerning these opportunities, considering the complexities of contracts and the nature of work performed at each stage.

• Architects and design: Architects are the first step in new ideas, especially when they push the boundaries of design. However, during the initial stages, i.e. stages 0 to 3 of the RIBA (Royal Institute of British Architects) plan of work, the uncertainty typically revolves around conceptual challenges and won’t translate groundbreaking ideas into tangible technological designs until stages 4 and 5.
• Site preparation: Given the lack of ideal sites to build on, new techniques can be crucial when developing challenging sites, like floodplains or brownfields, where environmental compliance and adaptation to extreme weather or existing subsurface conditions are key. Techniques developed to address such issues, ranging from innovative drainage solutions to remediation of contaminated sites can sometimes be candidates for R&D attention.
• Contractors: For contractors on traditional procurement contracts, R&D opportunities typically arise during the practical phase of bringing an architectural vision to life. This can include grappling with design oversights, or responding to unforeseen site conditions. Even during the enabling works phase—such as earthworks or dewatering, which are often viewed as routine—innovative solutions can sometimes be required to address unique challenges.

Ultimately, the capacity to claim R&D tax credits in construction hinges on demonstrating how specific activities have sought to overcome technological uncertainties and have delivered advances in the field. This is where a technical advisor can make a real difference.

What Makes a Strong R&D Claim?

With HMRC applying more scrutiny to R&D tax credit applications, it's more important than ever to make sure you make effective arguments. This is especially relevant in construction – a specialised industry where both the qualified tax advisor and HMRC reviewers may lack the sector-specific knowledge to judge the strength of a claim. Look for a team where both tax and technical advisors work together to take the reviewer through a carefully constructed journey that explains the merits of your project.

1. Start by articulating the initial context and inspiration behind your project, setting the stage by defining the 'why.' Understanding the motivations and drivers behind the R&D activity provides a coherent narrative framework for the claim.
2. Establish what is considered standard or typical within the industry—this serves as the baseline. By defining this norm, your advisor can help you illustrate why the conventional approaches were inadequate or inapplicable for your specific project needs, justifying the need for R&D.
3. Ensure that every step of the process is transparent and well-documented. This includes explaining the technological challenges encountered and especially what was challenging about them, along with the innovative strategies employed to overcome them.
4. By connecting the project's objectives and outcomes to wider industry goals or benchmarks, your advisor can underscore the significance and impact of your R&D activities, enhancing the claim's credibility.

In our work with clients, we ensure claims are not only well-structured and detailed but also resonate with HMRC's expectations by working with our clients to fully understand their context, goals and achievements.

To find out more about how we can support you with an effective R&D tax credit strategy, get in touch with one of our advisors today.