Let’s lay down the foundations – why are architects missing out on highly beneficial tax relief?
Georgina Keys, Senior Specialist Tax Consultant at market-leading specialist tax relief consultancy, Catax, discusses the world of architecture and misconceptions architects have when it comes to claiming tax relief.
Research & Development (R&D) is prevalent in almost every industry in the UK, and the construction industry is no exception. Many businesses throughout the sector are continuously undertaking R&D activity without even realising – whether it’s creating new systems, products or materials.
Introduced in 2001, R&D tax relief is a government-backed incentive that enables businesses to receive money back on qualifying expenditure in the form of a cash injection. However, the construction industry – particularly businesses in the architecture sector – is often hugely overlooked when it comes to making such claims.
In today’s world, architects are creating some of the most stunning, innovative and complex buildings from within city centres to remote areas, and everywhere in between. To design these unique properties, architects must be pushing the bounds of what is possible – or else we would all be sitting in standard square buildings.
Now more than ever, people are looking for bigger, better, stronger and more ecologically friendly properties. As I am sure architects will attest to, clients suggest crazy and “out there” design ideas, and it is up to the professional to bring these unique (sometimes what seems impossible) ideas to life. In some cases, the industry-standard way of approaching these designs just is not appropriate, or a standard approach may not even exist yet. Therefore, architects and their teams must create different methods to get the project over the line.
“But that’s just what we do…” says a director at an architecture practice I am working with. “True, but that doesn’t mean it’s not R&D”, I reply.
In my experience, there is an unfortunate misunderstanding that claiming R&D tax credits is reserved solely for the laboratories and people in white lab coats – that it does not apply to them. In looking at the HMRC legislation, I can understand why this is the perception. However, when you sit down and piece apart the legislation and look how it can be applied in a practical sense, you can see the depth and breadth of its application. Essentially, the legislation boils down to two items:
How have you advanced the current state of the art?
What challenges did you have to overcome to complete the project?
These advancements can be major – like achieving a high BREEAM rating through the development of new renewable technologies – or can be more modest, such as incorporating new building materials, new foundational techniques, or utilising/re-purposing existing technologies in a manner that they were not designed to do.
Perhaps one of the most interesting cases I have come across is one of my clients who were instructed to completely refurbish a home, using only ethically sourced and sustainable materials for every single aspect in the home. This meant no plastic, no metal, no chemical coatings, no synthetic insulation – all on a windy beach in the north of Scotland where it can get quite cold and rainy.
The architects were tasked with outfitting the entire home with completely natural materials, from the foundations to the attic and everything in between. In addition, the home design has to be completed without detriment to the thermal, acoustic, water tightness and structural capabilities, and performance of the home. Quite the tall order.
Recent research and statistics from HMRC note that most architecture practices are not claiming. However, there are multiple things the firms can be claiming on, including:
Salary costs of staff involved in R&D;
Subcontractors and external workers;
Wasted materials;
Software costs.
Footing the bill for software such as BIM/RevIT, CAD and AutoCAD is no small feat. The annual licence fees are extortionate and being able to recoup some of that money is definitely welcomed.
The aim of R&D tax relief is to reward companies that are innovating. Post-Brexit and the challenges COVID-19 has put all businesses through, the HMRC wants to continue innovation in the UK and wants to see companies stay afloat – such tax credits are a sure-fire way to fund this sustained advancement.
I have worked with many companies struggling to pay their employees or struggling to find the money to take a project to tender and, through this incentive, Catax has been able to unlock money to be further invested into the practice. By doing so, these practices have greater flexibility – some may hire other staff, or some take on more complex projects they otherwise would not be able to. This incentive is a way to ensure that architects have the funds to continue innovating to push the UK to the forefront of best practice in architecture worldwide.
For any businesses looking to claim for R&D tax relief, it is important to do so sooner rather than later if the company has a financial year end in March. This is because R&D can only be claimed for qualifying activity in the previous two financial years – any claims submitted after the 31st March will not include expenditure in 18/19 financial year, and could result in the company not receiving the largest possible refund!
So many architects are missing out on this highly beneficial relief – please don’t be one of them. Visit www.catax.com for more information or call 0300 303 1903.