Amendments to research and development tax reliefs that were introduced at the beginning of the current financial year are certain to have an impact on construction companies.
Research from Ayming UK unveiled that construction firms are offshoring en masse, with 83 per cent of the industry planning to carry out R&D abroad, and 46 per cent of the businesses surveyed are currently undertaking R&D abroad.
Concerns arose that it was too easy for construction firms to offshore innovation, and that talent within the UK would be neglected, particularly as the construction sector was beginning to report its fastest growth in two years.
What are the amendments?
The new rules restrict the extent to which payments to contractors for R&D and payments for externally provided workers (EPWs) can qualify for R&D relief if the project takes place abroad.
For contractor payments, the restriction applies based on the location of the activity. For EPWs, it applies if their earnings are subject to Pay As You Earn (PAYE) and Class 1 National Insurance contributions, encouraging them to make use of talent within the UK.
Consulting an expert accountant for R&D assistance is the best way to determine how the new changes will directly affect you.
Why were they necessary?
HM Revenue & Customs (HMRC) believe the system has been abused by firms, estimating that only 38 per cent of claims by small and medium-sized construction companies are wholly compliant with the legislation.
What are the limitations of the new rules?
Contracted out R&D activities must be carried out within the UK, regardless of the nationality of workers or where consumables, data or software are sourced from, meaning you can still qualify for R&D and still offshore some of your resources.
There are also exceptions regarding work needing to be carried out in the UK. If it is wholly unreasonable for the company to replicate the conditions in the UK will depend on the R&D, the circumstances of the company and the reason for undertaking the work abroad.
We offer specialist R&D tax consultants who can help you navigate the complexities of the new rulings outlined by the Government.
Contact our team today to discuss your requirements.