Construction R&D spending soars during pandemic, as do HMRC enquiries into claims
Office for National Statistics figures show £586m was spent by UK construction businesses on innovation in the year to March 2020 – up from £458m the previous year, and well in excess of the £14m spent in 2010.
The steep increase in activity reflected changing strategies adopted by businesses in the construction sector during the COVID-19 pandemic, particularly with regard to decarbonising their businesses and improving productivity.
The political and economic conditions appear ripe for further investment in innovation, especially with the ‘super deduction’ capital allowance announced by the government in March becoming available from 1 April 2021, and cloud computing costs – used in R&D – becoming eligible for tax relief as announced in the budget in October.
Even without the challenges COVID-19 has presented, construction projects encounter a host of complications that are often considered routine or “nothing new”.
However, the resolution of these challenges typically requires non-standard technical approaches to successfully reach completion and the R&D scheme is in place to reward the efforts dedicated to overcoming these constraints.
To find out more about R&D tax rebates for the construction sector refer to our previous article here.
HMRC enquiries into claims up by 90%
In the background to these record claims, HMRC’s recently published annual report highlighted a 90% increase in R&D enquiries as a result of concerns over the level of error and fraud in R&D claims.
HMRC estimates that this costs the taxpayer at least £336m a year, through a combination of both error and fraud.
Therefore, R&D claimants should expect their claims to be under an increasing level of HMRC scrutiny whilst HMRC try to reduce the cost to the taxpayer.
HMRC is committed to substantial investment in human resources and technology to address this, over and above the recruitment of an additional 100 R&D inspectors, which has already resulted in almost a doubling of enquiries.
Given the increased scrutiny of R&D claims, it is more essential than ever that R&D claimants are filing robust claims which are properly researched, prepared, and evidenced by accurate, appropriate and relevant documentation.
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The information was correct at time of publishing but may now be out of date.