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Tax Relief Claims: Construction

Whether you run a construction business or work in the industry, there are various tax relief programs and schemes available that you may be unaware of.  Investigating your eligibility could reveal that you are paying more tax than is required.

For employees

If you are paid each month through the PAYE (Pay As You Earn) scheme, then there may be adjustments available which could see the level of income regarded as taxable, being reduced.  If you are required to pay for expenses such as meals or lodgings whilst away on a job, you may be able to claim these costs back against your tax.  This is known as the ‘CIS Tax Refund’ and requires that you have a dated list of sites you have worked on, as well as supporting information such as wage slips and any vouchers that have been provided.

There are also reductions available if you have specialist or bespoke work clothing, and are required to launder or repair these yourself. You may be entitled to a reduction in your tax to help offset the cost of doing this.

It is estimated that one in every three construction workers pay too much tax, and HMRC has funds available each year for people to claim back, but due to unawareness of eligibility or even the existence of these funds, they don’t.

There are companies who can assist you with the process of claiming these tax benefits and reliefs should you not wish to undertake the various processes yourself.

For companies

One of the biggest ways to save on a company tax bill is through Research and Development (R&D) Tax Credits.  This system was introduced between 2000 – 2002 for companies of varying sizes, but many in the construction industry don’t investigate or apply the benefits to their own companies. In fact, according to HMRC around 40,000 claims were made in 2016-17 for the tax credit, but only 3.4% came from the construction industry.

The hesitation to apply mainly stems from the idea that R&D only applies to scientific projects – this isn’t the case, and the definition used by the Government states that the tax applies to ‘scientific and technological’ projects that either bring new knowledge or expand existing knowledge.

Examples of what companies claim

Much of the engineering work done by companies has the potential for falling under the definition for research and development. We have included a few examples below, but this is not an extensive list by any means.

Working on a site is full of challenges both managerial and logistical, it can mean whole new processes or procedures need to be implemented to successfully complete a job. One such example could be that unusual or difficult ground conditions, or unexpected environmental factors, can mean that standard practices aren’t suitable or possibly even viable.  When a company has to find new ways to deal with the situation or to adapt existing tools to suit the project, this can be classed as R&D.

Health and safety is always a concern in any industry, and any measures that a company develops to improve current practises may qualify for these benefits.

Developments in Modern Methods of Constructions (MMC) can also fall under the purview of the R&D Tax Credit system, for example – where the work involves advancing the current standard of knowledge within the industry.
Systems such as building information modelling can also come under the credit system when it helps create more efficient ways of working.

How and what to claim

It can be a daunting task trying to discover what you or your business are eligible for, and even making a start can be difficult. However, the potential savings and benefits of applying for these schemes makes them worth pursuing.

We are here to take the complications out of these procedures, offering their services to all industries – helping them assess the work they are doing and see if it is eligible for any of these tax credit schemes. We’ve helped hundreds of companies to make R&D tax relief claims including construction.

Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516 

Best Way to Get Startup Tax Advice in the UK

One of the biggest problems that startup businesses face is that they register or prepare for tax.  HMRC do make it relatively easy to register your business online once you have completed a few checks through Companies House with regards to business name.  And once you have registered, you can then start looking at tax, what you might need to pay but also any tax credits your business might be eligible for, such as for research and development.

Tax and national insurance

The two basic types of business tax UK currently levy on every type of company is tax and national insurance.  Tax is paid on profits while national insurance is paid on profits starting from a lower amount and is paid for employees of the business as well as an employer.

If you are self-employed as a sole trader, then you will pay tax on business profits as well as Class 2 and Class 4 national insurance – employer and employee for want of a different way to put it.  When you run a limited company with employees, you must pay income tax through the Pay As You Earn or PAYE scheme and also Corporation Tax as well as national insurance contributions.  Depending on the earnings of the business, it may also pay to register for VAT where you submit a quarterly return for payments and receipts of VAT.

Bookkeeping

The way that you know what tax and national insurance is going to be due when starting a new business UK based is via your bookkeeping.  There are lots of different ways to do this from the traditional paper and pen ledger through to simple spreadsheets and onto more complicated account software.  But whatever system you use, it should start from day one.

Legally, a business or sole trader much maintain accurate financial records that detail all the money entering and leaving the business.  According to Start Up Donut, these records should be kept for at least six years, even if the business stops trading.

The main components of a bookkeeping system include a cash book, a sales ledger, purchased ledger and a wages book.  Most of this can now be computerised, although a cash book is often required if the business uses petty cash to buy supplies such as milk and sugar for the office kitchen or occasional office supplies.  Some accountancy software can connect to the business’ bank account and automatically record all transactions, allowing you to dictate what they relate to and to exclude any person transactions for a sole trader.

Completing a tax return

Another area that many startups fall afoul of in their first year is completing a tax return.  While the self-assessment system makes it theoretically easy to complete the relevant information, see what tax you owe and sort out the payment, the emphasis is entirely on the person completing the form to make sure it is right.  If anything goes wrong, you will be liable for the consequences.

For this reason, it can often be a good idea to get someone to either complete the form on your behalf or to double check all the information before submitting it.  If the business has appointed an accountant to handle all the bookkeeping issues, then they will deal with this but otherwise, it may be worth seeking a professional for this area.

You can also speak to an expert in tax advice UK rules who can tell you if there are any extras you may be able to claim for or schemes that your business might qualify for that could lessen the tax you need to pay and even get you a tax credit.  Examples include machinery, fixtures and fittings for the premises which are claimed as a capital allowance.  Money spent to create the business can sometimes also qualify as this type of expense.

Qualifying for R&D tax credit

A perfect example of this is the research and development tax credit scheme the government currently operates.  This is designed to give businesses who are working to research and develop things in the area of science or technology a refund of monies paid in this research.  The great thing is that the research doesn’t even need to be a success to qualify – but it does need to meet certain criteria to do so.

Again, businesses don’t need to do this alone.  There are specialists such as Easy R&D who can look at the work done by the business and advise if it qualifies for the tax credit.  If it does, you can claim for expenses such as materials used in the R&D and staff wages when working on these projects.  Even a portion of utilities and other expenses can be claimed for and the repayment for small businesses is up to 33% of the qualifying R&D costs.

Registering for VAT

Another big decision that sometimes can affect a startup business in its first year is whether or not to register for VAT.  Value Added Tax or VAT is charged on most goods and services in the UK and also on some imported from the EU and outside it.  Businesses making more than £85,000 automatically have to register for it.

VAT is something of a cycle – a business pays it on goods bought and charges it on goods sold, for example.  The idea is that the two equal out but if they don’t then a business can owe or be owed a payment from HMRC.

There are two main reasons to voluntarily register for VAT if your business doesn’t make this figure.  One reason is if customers are predominantly other VAT registered businesses so it makes no real difference whether your business is VAT registered or not.  The other is if you often find your business would be in a refund position and by registering, you can recoup this money from HMRC.

Conclusion

Getting the right tax advice is often key for new businesses.  It can help understand when you can expand, add new product ranges and try new markets as well as ensuring you are always on top of the amount of tax you will need to pay each year.

Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516 

R&D Tax Relief Really Works

Whether you are a new business or an established one, research and development can be key to the business developing.  Working on solving problems and developing new products can make the difference between success and failure for a business.  And also now the business can claim money from the government towards the cost of this work – in the form of R&D tax credit HMRC issue.  But what is the system and does it really work?

Changing face of R&D

Back in the early 2000’s, research and development in the UK was at something of a low.  The amount of research being done was steadily declining and the government decided that something needed to be done.  R&D has a big impact on GDP and the UK’s was some 30% less than countries such as France, USA and Germany.  There was also an innovative gap mirroring a productivity gap that means the country was spending less on research than others and had been since the 1980’s.  So what could they do?

They opted for a R&D tax incentive that would reward companies of all sizes that embarked on qualifying research and development by refunding them the money paid out on the research and also a percentage on top of this.  And it worked – the figure for 2009 versus the predicted figure before the new credit was brought in 2008 clearly showed an increase in the amount of research and development conducted.  In fact, there was around 50% more research conducted and an increase in innovation of around 60% due to the new policy.

Getting R&D tax credits

The success of the policy has continued and is clearly why the government not only kept it in place but increased the amount of funding it puts aside for it – almost doubling the amount.  This means an increasing number of companies can receive R&D tax credits to help with the costs of the work they are doing and allowing them to start a project that might be put on the back burner without this extra help.

So how do you know if your business can qualify for the scheme and how much could it be worth to you if you do?  Let’s take a look at the meat of the R&D Tax Relief system.

Step one – Small and Medium or Large?

The first step in seeing if your company qualifies under the Small and Medium Enterprise or the Large Company area of the tax relief.  The cut-off point is either 500 staff or a turnover of less than €100 million or gross assets of less than €86 million.  Once you know if you are an SME or a large company under this definition, you can get an idea how much the tax relief could be worth for your company.

For SME’s, the amount of tax relief you can reclaim is up to 33% of the qualifying R&D spend.   You don’t even have to have made a profit to claim the relief – you can either receive it as a credit towards the following year’s tax bill or even surrender it for cash at a rate of 14.5% of the qualifying R&D costs. For large companies, the amount claimable is up to 9.7% of the qualifying R&D spend.

Step two – what qualifies as R&D?

The next step is understanding if the work your company does qualifies as research and development because not everything does.  For example, the work must either create new products, services or processes or change or modifying an existing product, service or process.  The research doesn’t need to be a success to qualify for the credit but it can’t be in anything other than science and technology – it excludes areas such as social sciences, economics and arts.

The project needs to be more than just commercially innovative – it needs to be a genuine advance to existing knowledge.  This might mean clearing up something we are currently unsure about or adding to the knowledge on the topic that will eventually lead to clearing up the uncertainty.  It also needs to have a firm method to it that means it is a clear research and development project.  This in turn leads to what you can claim for under the tax relief system.

Step three – what you can claim for?

Once you know how much you can claim and that your work qualifies under the scheme you then need to know exactly what costs can be claimed for under the scheme.

Perhaps the big one is the cost of employees’ wages for those people involved directly with the project – so if three people are working full time on the R&D, then you can claim for their wages.

The materials used in the research are the other big thing that can be claimed for under the tax relief.  These are physical materials that are used in the work rather than abstracts such as data costs or telecoms bills.  However, there is an allowance for utilities used for the project and software purchased specifically for the work.

Conclusion

There’s no doubt that R&D tax credits really work for a large number of businesses but an even larger number don’t make a claim because they don’t realise that they can or that it is worth it for them.  That’s why Easy R&D now offer a service that can help you go through these steps to see if the work being done qualifies for the credit and, if it does, how you can claim back that tax relief.  It takes the guesswork out of the process and ensures that you quickly get the credits due to your business.

Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516