Each month a Catax expert gives insight into a hot topic.
To kick off February, Georgina Keys, our Senior Specialist Tax Consultant discusses the world of architecture and how some architects may have misconceptions when deciding whether they might be eligible to claim or not.
The architecture sector is hugely overlooked when it comes to claiming R&D tax relief. Architects today are creating some of the most stunning, innovative and complex buildings from right within city centres to remote areas, and everywhere in between. To create these stunning, innovative and complex buildings, architects must be pushing the bounds of what is possible– or else we’d all be sitting in standard square buildings.
Today, everyone wants bigger, better, stronger, and more ecologically friendly homes. As I am sure architects will attest to, clients come up with crazy and ‘out there’ design ideas, and it’s up to them to bring these…unique…ideas to life. In some cases, the industry-standard way of approaching these designs just isn’t appropriate, or a standard approach may not even exist yet. Therefore, architects and their teams must come up with different methods to get the project over the line.
“But that’s just what we do…” says a director at an architecture practice I am working with. “True, but that doesn’t mean it’s not R&D”, I reply.
In my experience, there is an unfortunate misunderstanding that claiming R&D tax credits is reserved solely for the laboratories and doesn’t apply to them. In looking at the HMRC legislation, I can understand why this is the perception. However, when you sit down and piece apart the legislation and see how it can be applied in a practical sense, you can see the depth and breadth of its application. Essentially, the legislation boils down to two items:
– How have you advanced the current state of the art?
– What challenges did you have to overcome to complete the project?
These advancements can be major – like achieving a high BREEAM rating through the development of new renewable technologies or can be more modest, such as incorporating new building materials, new foundational techniques, or utilising/re-purposing existing technologies in a manner that it was not designed to do.
Perhaps one of the most interesting cases I’ve stumbled upon is one of my clients who were instructed to completely refurbish a home, using only ethically sourced and sustainable materials for every single material in the home. This meant no plastic, no metal, and no chemical coatings, no synthetic insulation – all on a windy beach in the north of Scotland where it can get quite cold and rainy. The architects were tasked with outfitting the entire home with completely natural materials, from the foundations to the attic and everything in between. In addition, the home design has to be completed without detriment to the thermal, acoustic, water tightness and structural capabilities, and performance of the home. Quite the tall order.
Recent research and statistics from HMRC note that most architecture practices are not claiming. But what do the practices that claim R&D tax credits claim relief on?
– Salary costs of staff involved in R&D
– Subcontractors and external workers
– Wasted materials
– Software costs
Footing the bill for software such as BIM/RevIT, CAD and AutoCAD is no small feat. The annual license fees are extortionate, and being able to recoup some of that money is definitely welcomed.
HMRC wants to reward companies that are innovating. Post-Brexit, the UK wants to keep the innovation in the UK. With the challenges COVID-19 has put all businesses through, HMRC wants to see companies stay afloat and R&D tax credits are a sure-fire way to fund UK innovation.
I have had the privilege of working with companies struggling to pay their employees or struggling to find the money to take a project to tender and through this incentive, Catax has been able to unlock money to be further invested into the practice. By doing so, these practices have greater flexibility – some may hire other staff, or some take on more complex projects they otherwise wouldn’t be able to.
At the end of the day, this incentive is a way to ensure that architects have the funds to continue innovating to push the UK to the forefront of best practice in architecture worldwide.