31 July 2020

What is R&D property?

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Businesses can save thousands of pounds by qualifying for R&D tax credits, but many companies in the property sector don’t even realise they’re eligible. If you’re developing new products or innovative processes, you could benefit from this tax relief. Keep reading to find out more about the credit and how property businesses can make the most of it.

What is R&D relief?

The research and development tax credit is a government incentive created to encourage businesses to innovate in their sector. Any company investing in science or technology to advance in their field can claim tax relief, whether they’re building on existing processes or developing new ones. You’re eligible even if you’re working on behalf of a client or if the project is unsuccessful.

As with any tax credit, there are many criteria businesses need to meet if they’re to benefit from it. The work must:

  • Be related to your business or one you intend to launch
  • Be carried out to advance the overall field, as opposed to just your business
  • Not be based on theoretical or social sciences like economics or pure maths

Those claiming the tax credit must be able to:

  • Explain how they intended to advance science or technology
  • Explain how the work involved overcoming uncertainty and how they tried to overcome this uncertainty
  • Show how the work has posed a problem for others in the past (this may mean explaining how previous projects have failed or getting specialists working on the assignment to explain the complexity involved)

The qualifying criteria are specific, but there are a couple of technicalities to bear in mind:

  • You can still qualify by working on a project another business developed if it didn’t release the details (keeping it as a trade secret, for instance)
  • You won’t qualify if your project involves working on the cosmetic features of a product, service or process. But you will qualify if you’re developing specific aesthetic effects with the use of science or technology.

There are two types of R&D relief

Small and Medium-Sized Enterprises (SME) R&D Relief

You’re eligible for this relief if you employ fewer than 500 workers and make less than €100 million or have a balance sheet under €86 million. Just remember to take linked companies and partnerships into account when working out whether you qualify as an SME.

Under this scheme, you can deduct 130% of your R&D expenses from your annual profit to reduce your tax bill. This relief can be taken on top of the usual 100% reduction to make 230% in total. If you don’t turn a profit, the government will give you a tax credit of up to 14.5% of your ‘surrenderable’ loss.

Research and Development Expenditure Credit (RDEC)

This relief is relatively new and was brought in to replace the old credit for large businesses. It’s available for companies that don’t qualify for the SME R&D relief, or small and medium-sized businesses that have been subcontracted to do research and development by a large corporation.

If you qualify for the RDEC, you’ll be credited 13% of your qualifying expenses, as of 1st April 2020.

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R&D covers a wide range of different activities

Many property businesses miss out on research and development tax credits because they don’t realise their work qualifies for the relief. In fact, the list of eligible tasks spans a huge number of areas and covers work done by many different professionals, from architects to structural engineering consultants to demolition workers.

Here are some examples of activities eligible for R&D relief:

  • Researching new construction materials and their potential uses
  • Creating sustainable housing or smart building designs, or developing low-carbon initiatives
  • Improving recycling processes as part of waste management
  • Developing software for architectural work
  • Developing software to enhance data storage, budget tracking, planning or design processes
  • Improving off-site building construction processes to lower costs

Property businesses could save a lot through R&D relief

While the R&D credit is not claimed as much as it could be, it is particularly relevant for the property industry. Professionals working in the sector often have more opportunities to benefit from the relief than businesses in other areas – and the statistics corroborate this potential saving.

According to RIFT Research and Development Ltd, the property industry claims the largest share of R&D credit in relation to total sector expenditure of any industry, at 33%. The next highest ranking is food and accommodation, which claims 20%. But why does the property sector top the chart?

Well, some experts believe the property industry lags behind others in certain areas. Because there’s such a high demand for residential and commercial buildings, businesses offering property services sometimes struggle to keep up. This imbalance has resulted in complicated admin processes and perceived poor customer service. So, there’s plenty of opportunity for innovation.

Also, the advancement of other industries drives improvements in the property sector. As consumer demand changes and other businesses refine their working practices, those working in property must keep up if they’re to continue offering a great product. Architects, estate agencies, civil engineers, surveyors and valuation professionals – to name just a few roles – all have the chance to review their sector’s best practices and update them.

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Proptech is leading industry innovation

Over the past decade or so, businesses in the property industry have been able to streamline their processes, thanks to new tools and platforms. You only need to look at Rightmove and Zoopla to see just how big an impact technology can make when it comes to finding properties and communicating with estate agents. This innovation is down to proptech – or property technology.

Skilled developers have revolutionised the property industry already, but there’s still plenty of opportunity for further innovation. Simplifying the complex processes surrounding conveyancing, gaining planning permission and asset management, for example, has the potential to significantly boost the industry’s productivity. And, if the solutions you work on could benefit other businesses as well as your own, the government is willing to reward you for your efforts.

Find out more

You can read more about the research and development tax relief and fill out a Company Tax Return form with your updated expenditure on GOV.UK’s R&D webpage. You can claim a tax credit for accounting periods which ended up to two years ago and submit details for up to 10 separate R&D projects.