Research & Development (R&D) is not all about laboratory scientists in white coats, architectural practices may qualify through the solutions they design and develop for construction-related problems.
Qualifying expenditure must make an advance in science or technology. This can either be a new process, product or service, or an improvement to an existing one.
Inspiring, energy efficient, sustainable buildings, constructed in challenging, urban or brownfield spaces increasingly require a problem-solving approach to architecture. Added to that, the likes of design software, computer modelling and 3D-printing are increasingly used to achieve the desired outcomes, with the associated costs incurred potentially being qualifying R&D expenditure.
What are the reliefs available to your architecture firm?
Small or medium-sized enterprise (SME) scheme – eligible companies can claim 230% of their qualifying R&D costs, so for every £100 of such expenditure, £230 of relief is obtained. Therefore, for a profitable SME, the net cost of £100 R&D expenditure is £56.30.
If you are loss making, you can still benefit from making an R&D claim. Such entities may be able to surrender all or part of the loss and claim a repayable tax credit from HMRC. The amount which can be surrendered is the lower of the unrelieved trading loss and 230% of the qualifying R&D expenditure.
The repayment is 14.5% of the surrendered loss meaning that £100,000 of qualifying costs could result in a cash credit of £33,350.
RDEC scheme – this covers larger companies with turnover in excess of €100m or a balance sheet total over €86m, with more than 500 employees. The reliefs are not as generous, at 12% of your company’s qualifying R&D expenditure, and is itself taxable.
What are examples of qualifying expenditure?
The most common qualifying expenditure in architectural practices is wages and salaries paid to the architects working on R&D projects. However, it can also include software development costs, payments to subcontractors who work on R&D activities, consumables incurred on prototypes and other indirect activities.
How can an R&D tax relief claim be made?
Claims are made through a company’s corporation tax return so LLPs cannot make a claim as they are not subject to corporation tax. However, a specialist R&D company could exist within the wider architectural group for commercial reasons, and that entity could benefit from making a claim. It is important to ensure the group structure is designed appropriately.
R&D claims are reviewed by specialist units at HMRC, so it is important that sufficient information is provided alongside the computation for the claim to be processed. This includes details of:
- The nature of the project
- The scientific or technological advances sought
- The scientific or technological uncertainties encountered and how and when they were resolved
- Why the advances were not readily deducible by a competent professional.
- Details of qualifying expenditure.
Menzies have a specialist R&D team who work with firms across a broad range of sectors. In the last two years, we have assisted clients to recover in excess of £10m from HMRC, enabling them to reinvest these funds to drive commercial growth. Architectural firms are included within this and we have worked with them to develop the right group and commercial structures, whilst realising the benefits of R&D tax relief.