In short: Construction companies can claim R&D tax relief, but only where a project sets out to achieve an advance in science or technology and has to resolve uncertainty that a competent professional could not readily resolve. Solving a difficult problem on site is not enough on its own. On client contracts, who can claim depends on whether the client intended or contemplated that R&D would be needed when the contract was agreed. HMRC looks closely at these claims, so the evidence needs to be in place from the start.
Construction rarely looks like a laboratory, but some demanding engineering happens in design offices, temporary works and on site. That is why construction companies do make R&D tax relief claims, and why HMRC examines them carefully. This guide explains what qualifies, who can claim when the work is for a client, which costs count and what to have in place before you claim. For wider support across the sector, see our construction accountants page.
R&D for tax purposes has a specific meaning set out in government guidelines. A project must seek an advance in overall knowledge or capability in a field of science or technology, not just an advance for your own business. It must involve scientific or technological uncertainty, meaning a competent professional in the field could not readily work out whether something is possible, or how to achieve it, from knowledge that is already available. Only the activities that directly contribute to resolving that uncertainty count.
A groundworks or civils contractor developing a new foundation or ground stabilisation method where established approaches cannot cope with the ground conditions. An M&E contractor developing a control system that makes heat pumps, battery storage and existing plant work together in a way that has not been done before. A housebuilder or offsite manufacturer developing a new panel or connection system that must meet structural, thermal and fire performance at the same time. A main contractor devising a new temporary works method where existing techniques cannot protect a sensitive neighbouring structure.
These are starting points, not guarantees. The claim covers the specific work that tackled the uncertainty, which is usually only part of the wider project.
Applying known techniques or products, even for the first time in your business. Routine design, value engineering and buildability reviews. Meeting building regulations or planning conditions with established methods. Aesthetic choices. Practical site problems such as access, weather and programme pressure. Installing an innovative product that someone else developed. The construction work itself, once the uncertainty has been resolved.
This is the question that matters most in construction, because most R&D happens while delivering a contract for someone else. Under the current rules, where R&D is contracted out, the right to claim generally sits with the customer that contracted it out rather than the company doing the work. R&D is treated as contracted out where it is reasonable to assume, from the contract and the surrounding circumstances, that the customer intended or contemplated that R&D of that sort would be carried out when the contract was entered into. HMRC's guidance sets a high bar, and general wording about innovation in a contract is not enough on its own.
In practice, where a client specifies an outcome and leaves the contractor to work out how to achieve it, carrying the technical risk, the contractor may be entitled to claim. Where a client commissions a contractor specifically to develop something new, the claim is more likely to sit with the client. There are also narrower exceptions where the customer could not claim itself, for example some clients that are not companies. The same analysis runs down the supply chain from client to main contractor, specialist subcontractor and designer.
Tender documents, scopes of work, design responsibility matrices and meeting notes therefore carry real weight. It is far easier to agree who is entitled to claim at the start of a contract than to argue about it once the work is finished.
Staff costs for employees, including directors on the payroll, for time spent directly on R&D, covering salaries, employer National Insurance and pension contributions. Workers supplied through an agency or other staff provider, where they are paid through PAYE. Payments to subcontractors for R&D work carried out in the UK, where usually only a proportion of an unconnected subcontractor's charge is allowed. Materials and other consumables used up or transformed in the R&D itself, such as test panels, trial mixes and mock ups. Software, data and cloud computing used directly for R&D.
Materials that end up in the permanent works you hand over to your client are generally excluded, because they form part of what you are paid to deliver. Self employed labour paid under CIS does not count as workers supplied through a staff provider, so whether any of it qualifies depends on the work and the contract. Plant, test rigs and other capital items are not included in the claim, although they may qualify for capital allowances. Work carried out overseas is heavily restricted, and payments to connected companies follow their own rules.
Good records make all of this easier. Tracking costs and time by project, as covered in our guide to construction cost accounting, and keeping reliable payroll records mean the numbers in a claim can be traced back to evidence.
The relief works as a taxable credit calculated on qualifying spend. A profitable company uses it to reduce its corporation tax bill. A loss making company may be able to receive it as cash, subject to limits linked to its PAYE and National Insurance costs. A loss making company that spends a high proportion of its total costs on R&D may qualify for a more generous route. Rates and conditions change, so check the current position before relying on a figure. For a business with long payment cycles, a successful claim can be a useful boost alongside the options in our guide to funding options for construction companies.
If this is your first claim, or you have not claimed recently, you must notify HMRC within six months of the end of the accounting period you want to claim for. Miss that window and you lose the right to claim for the period. Our guide to the HMRC R&D claim notification requirement explains who is affected.
Every claim needs an additional information form setting out the projects, the uncertainties and the costs. It must be submitted before the claim, or the claim will not be valid.
A claim must normally be made within two years of the end of the accounting period it relates to.
Design iterations, calculations, test results, site diaries, photographs and timesheets recorded at the time are far more persuasive than a narrative written a year later.
HMRC has stepped up its checks on R&D claims, and construction claims tend to be challenged on the same few points: routine work presented as R&D, the wrong company claiming on a client contract, and costs such as materials in the permanent works being included. Directors remain responsible for the accuracy of a claim even when an outside firm prepared it. If a claim is wrong, the relief has to be repaid, potentially with interest and penalties. Be wary of anyone promising a large claim for ordinary projects in return for a percentage fee. Our article on winning an HMRC R&D enquiry shows what a well supported claim looks like under scrutiny.
Our innovation tax team starts by testing whether your projects genuinely meet the definition, before any claim is prepared. We work through the contracted out question on your client and subcontract agreements, build the costs from your own records, and handle the claim notification, the additional information form and the claim itself. If HMRC asks questions, we support you through the enquiry. You can find out more about our R&D tax relief service, our wider tax relief work, and tax advisory support for construction businesses.
If you think your company has carried out qualifying work, or want a straight answer on whether it has, talk to our construction sector team. When you are ready, get started with Pulse and we will arrange a conversation with an adviser who knows construction.
Yes, where a project seeks an advance in science or technology and has to resolve uncertainty that a competent professional could not readily resolve using existing knowledge. Most construction work does not qualify, but specific parts of complex projects, new methods, materials and systems can.
Not on its own. Overcoming access, weather, programme or buildability problems is part of normal construction. It only counts as R&D where the problem involved genuine scientific or technological uncertainty that could not be resolved by applying known techniques.
Sometimes. If the client or main contractor intended or contemplated that R&D would be needed when the contract was agreed, the right to claim usually sits with them. If they simply specified an outcome and left the technical risk with the subcontractor, the subcontractor may be able to claim.
Sometimes, and usually only in part. Self employed labour paid under CIS is not treated as workers supplied through a staff provider. Payments to a subcontractor for work that is itself part of the R&D, carried out in the UK, can qualify, but only a proportion of the payment is normally allowed.
If it is your first claim, or you have not claimed recently, you must notify HMRC within six months of the end of the accounting period or you lose the right to claim for that period. Every claim also needs an additional information form.
A claim must normally be made within two years of the end of the accounting period it relates to. Missing the claim notification deadline, where it applies, can stop a claim well before that time limit runs out.