Insight: Architecture sector missing out on R&D tax incentive for innovation

Many architectural firms are missing out on a highly beneficial government scheme, which could significantly reduce their corporation tax bill. Haines Watts looks at the opportunities available to architects and firms in the construction supply chain.

Research and development (R&D) tax relief is a government incentive to encourage businesses to innovate. Eligible businesses can reclaim tax relief on an additional tax deduction of 130% of qualifying expenses – significantly reducing their tax bills.

Yet despite this, the number of architects and construction supply chain firms claiming R&D tax relief is relatively low and they are missing out on thousands of pounds in tax credits.  Per HMRC’s latest annual stats this amounted to £3.5 billion paid to 38,940 companies.

The number of architects and construction supply chain firms claiming R&D tax relief is relatively low compared to other sectors / Picture: Getty/iStock

Although the UK is a pioneer when it comes to innovating in architecture, it is lagging behind countries like Germany and America in terms of recorded R&D. That does not mean the R&D activity is not taking place, in fact, it’s completely the opposite – it’s just that this activity is not accurately recorded by the government due to poor tax relief uptake by the sector.

Despite popular belief, research and development does not only happen in scientific laboratories, but it is also occurring in most sectors and architecture is no exception.

For tax purposes, R&D is defined as a project which is advancing science or technology through the resolution of technical uncertainties. Architect firms sit within the category “professional, scientific & technical”.  Per HMRC’s latest stats this category submitted 19.16% of claims, average yearly tax saving of £71,649.  The average across all sectors was £53,876. Innovation is at the very foundations of the architecture and construction design industries, yet professionals in the field do not see their innovative work as ‘research and development’ and don’t consider R&D tax credits are applicable to them.

However, architecture is definitely innovative and has been revolutionised by advancements in technology, such as AI-driven design, 3D modelling and printing, as well as new design software products (adoption of digital disruption technologies) and new composite materials. Many of these areas may qualify for tax relief under the R&D Tax credit scheme.

You may ask – how do I identify my R&D activity? Answer: Sector, site-specific complexities and legislative changes drive technical challenges which require smart, imaginative, outside the box thinking, technical planning, delivery and implementation of future-proofing digital strategies which underpin an even deeper understanding of built and natural environments but in a new, non-standard application and sustainable way. Qualifying activities could include developing modular prefabricates or producing off-site manufactured design, creating new testing and workflow capture processes and systems, prototype designs using thermal modelling, 3D BIM software solutions and utilising new materials and processes in an innovative way (extending the scope of baseline technologies).

Haines Watts R&D North West Ltd works closely with architectural firms to educate business owners and key technical managers on how they could be eligible for R&D tax relief.  They advise on what constitutes a robust claim and how to forward plan for R&D spend to de-risk business decision making.