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The Role of R&D Tax Credits in the Growth of UK Construction Companies

To stay competitive in the construction industry, many companies are turning to research and development (R&D) to develop novel ways to push the boundaries of conventional construction processes, materials and structural designs.

However, R&D is a risky investment because it costs valuable money, time, and resources, and the outcome is almost always unknown. Government-backed R&D tax credits can fund R&D work, helping construction companies thrive in this vital industry.

In 2023, the size of the UK construction sector was valued at over £108 billion, making it a key driver of the UK economy and a big part of the government’s ‘build back better’ scheme. Not only that, but to meet net zero targets, the government not only wants to ‘build back better’, but it also wants to ‘build back greener’. They need construction companies to spend time, money, and resources developing new, sustainable ways of building homes, roads, railways, and other infrastructure.

Construction companies are working on projects designed to boost safety, sustainability, and the adoption of technology, and overcome challenges like supply chain issues, labour shortages, and environmental demands.

R&D tax credits empower construction firms to think outside the box while minimising financial constraints. Through R&D tax credits, construction companies can develop safer, more efficient, and eco-friendly construction methods and technologies.

In fact, for the 2022-23 period, 9% of all R&D tax credit claims were made for the construction industry.

This government incentive drives innovation and growth in the sector, solidifying a more resilient and advanced landscape for the construction industry.

R&D projects within the construction industry 

R&D within construction pushes the boundaries of traditional construction methods, to improve commercial and residential building processes, materials, and structural designs. 

R&D works to find novel ways to address existing construction challenges like: 

• Reducing environmental impact
• Enhancing structural robustness
• Creating cost-effective infrastructure
• Supply chain disruptions 
• Regulatory changes
• Project delays 
• Skills shortages 

But qualifying for the R&D tax credit scheme and claiming back some of those costs requires construction companies to demonstrate how they overcame (or attempted to overcome) scientific or technical uncertainty.

For example:

Company A claimed £40,000 in R&D tax credits for designing a customisable telescopic load-holder that could bear the load on any site that trusses would normally bear when roofing. Nothing like this was on the market at the time of creation, and the company was not certain it would be able to develop a tool with universal applications and without breaking the budget.

The future of R&D tax credits in the UK construction industry is promising, with many opportunities for construction companies to innovate and grow. With the increasing focus on sustainable construction, R&D will become even more critical in the industry's growth and development.

The 2024 Spring Budget update is likely to impact the construction industry positively, as the existing RDEC and SME schemes will be merged; accounting periods beginning on or after 1 April 2024 being claimed under the merged scheme. The rate under the merged scheme will be set at the current RDEC rate of 20%. This scheme will allow large companies to claim for subcontracted work and offer more clarity on eligible costs. It will also offer a simpler method for claiming R&D tax credits than through the SME scheme.

The government also announced that it will provide additional relief for loss-making R&D SMEs through a higher rate of payable tax credit from April 2023, where 40% of their total company expenditure is on R&D.

R&D tax credits are a powerful catalyst for innovation and growth in the UK construction sector. They reduce the financial burden of experimentation and allow companies to pursue bold solutions to some of the industry’s most pressing challenges—whether that’s improving sustainability, boosting efficiency, or overcoming supply chain and labour issues.

With government support becoming increasingly accessible through upcoming changes, now is the time for construction companies to explore how R&D tax relief can fuel their next big breakthrough.

If you have questions, contact us, or dive deeper into the world of R&D tax credits with our other blogs.