Whilst we don’t know what lies ahead for the construction industry over the next 12 to 24 months, we do at least have the assurance that the Government is totally behind the sector.
Last year, Boris Johnson said we were going to ‘Build, Build, Build’ and his Government has pledged billions for the public sector. In February, a further announcement outlined a £3.5bn Government fund to sort out the cladding on high-rise residential blocks in England.
This, combined with the change-of-use classes, permitted development rights, attractive ROI, not to mention property owners’ and occupiers’ response to COVID-19, the investment sector looks set to be active too.
And what we can be sure about is that we already have a raft of well-established tax incentives and reliefs to get business owners and investors to build, refurbish, fit out and do some pretty amazing and innovative stuff. Capital allowances and R&D tax credits, to name but just two, are a source of vital revenue for companies in the construction and commercial property sector.
The UK construction industry is a world leader when it comes to getting the job done. It’s doing this with innovative designs, creative new products and materials, new construction techniques and investment in improved efficiencies, reduced carbon footprints and sustainability.
The construction sector does not see itself as likely candidates for claiming R&D, though and too many capital allowances claims are not optimised because those managing the process and doing the calculations do not understand the legislation or the intricacies of construction and its procurement.
The claims can amount to significant savings:
- 19% of construction expenditure back in cash, 45% for individuals
- 230% with R&D Tax credits, which means that for every £100 a business spends on R&D they could get £300 back.
An expert eye
What is clear is that businesses looking for additional funds would do well to get an expert in at the earliest opportunity to identify the tax relief claims available to them.
A report by BDO ‘Learning from R&D trends in construction’ shows some startling facts:
- The UK manufacturing sector contributes £190bn to the UK economy each year and receives 30% of all UK Government R&D tax credits
- The UK information/technology sector contributes £180bn to the UK economy each year and receives 24% of all UK Government R&D tax credits
- The UK construction sector contributes £117bn to the UK economy each year and receives less than 3% of all the UK government R&D tax credits.
This clearly shows that millions of pounds go unclaimed each year. To support businesses, the Treasury has increased the number of personnel handling such claims to help get cash back where it belongs – in the business’s bank accounts.
The good news is that R&D tax credit claims are currently, on the whole, being turned around in one month. The downside is that more claims are being carefully scrutinised by HMRC and more claims are being queried. Precision and detail are paramount in order to reach early agreement at the submitted figure.
An expert eye from the outset will not only identify all the potential claims but ensure that they are put forward in the right way at the right time to ensure success. For example, a client of mine purchased a mixed-use property in a business park in the Home Counties and asked me to review it for any unclaimed capital allowances. This one purchase resulted in six different tax relief claims.
It started well when it turned out the seller hadn’t claimed any capital allowances, which was excellent news for my client who was able to make a claim on the purchase price paid. 25% of the purchase price qualified for allowances.
They then refurbished the property and subdivided it into three units; one for their business and two for new tenants. One tenant signed a lease on the basis that my client contributed towards the unit fit out.
What started out as a simple fit out in the client’s mind turned out to be a lot more complex. There are various categories that the expenditure falls into on this project:
- General plant claim (18% pa) for expenditure on the demountable partitions, blinds, carpets, storage racking, ironmongery, security alarm, electric sliding doors, WC facilities, kitchen fittings and office furniture
- Integral features (6% pa) claim for the electrical installations, heating, comfort cooling, and hot and cold water services
- Research and development allowances (100% fya) claim on the cost involved in constructing a research and test area in the workshop
- Structures and buildings (3%) claim for the balance of the works
- Land remediation – asbestos removal (150% fya)
In addition, my client was able to make a claim for their Capital Contribution (6% and 18%) to the tenant’s fit out. All these allowances must be accounted for separately and are not given automatically. The legislation and HMRC dictate which category the expenditure has to go in so that they can be claimed in the tax computations.
Working closely with my client and his accountant, we were able to ensure the claims were optimised and submitted as early as possible in order to receive the savings and get the cash back into the business to help with cash flow.
If we are to Build Back Better, as the PM wants us to, we need to get smarter at taking full advantage of these Government-backed schemes and get the cash back in to the banks of businesses to help with the economic recovery this country is hoping for.