R&D tax relief in construction: are you missing out on valuable support?

The UK construction sector operates in a highly complex and fast-moving environment, with businesses balancing shifting costs, evolving supply chains, long project cycles and ongoing pressure on margins.

For finance leaders and decision-makers, this is compounded by increasing regulatory demands and greater scrutiny from HMRC. While the UK tax framework provides incentives to support innovation, investment and growth, many construction businesses may not be realising their full potential.

There remains a widespread assumption that construction activities fall outside the scope of R&D tax relief. In practice, many projects involve qualifying work, from developing new construction techniques to overcoming site-specific technical challenges and improving materials, systems or processes.

However, as HMRC continues to focus more closely on the quality of claims, particularly those involving contracted-out activity and complex supply chains, businesses need to take a robust and structured approach. Clear evidence of innovation, strong documentation and defined ownership of R&D activity are now critical to securing and sustaining successful claims.

What qualifies as R&D in construction?

For tax purposes, R&D occurs when a project seeks to achieve an advancement in science or technology by resolving scientific or technological uncertainty.

In construction, this could include:

• Developing new or improved building methods and engineering processes
• Overcoming complex structural challenges or environmental conditions
• Developing sustainable or energy-efficient materials, with different structural properties

In the construction sector, innovation often occurs during tendering, design and planning, as well as on-site, where technical challenges are addressed and resolved in real time.

Key considerations for construction businesses

1. Contracted and subcontracted R&D

R&D in construction often takes place within complex contractual arrangements. Determining who is entitled to claim relief is not always straightforward, particularly where multiple parties are involved in delivering innovation.

Businesses should consider who intended the R&D to take place, who controls the work and who benefits from the outcome. For businesses working through layered contractual arrangements, it is also worth reviewing how the contracted-out R&D rules and tender-stage activity could affect entitlement to claim.

2. Evidencing your claim

A lack of robust documentation is one of the most common reasons R&D claims are challenged or unsuccessful. To support a credible and defensible position, businesses should maintain clear, contemporaneous records such as:

• Design drawings and technical specifications
• Site diaries and detailed project records
• Testing data and trial outcomes
• Internal communications and meeting notes

Effective documentation should clearly evidence the technical uncertainties encountered, the steps taken to resolve them, and why existing approaches or solutions were not adequate.

3. R&D during the tender stage

Innovation in construction often begins before a contract is formally agreed. Tendering and pre-contract phases can involve developing tailored designs or technical approaches to meet specific client requirements.

Where these activities involve addressing genuine technological uncertainty, they may qualify as R&D. As a result, it is important that early-stage project work is considered as part of any R&D review process, rather than focusing solely on delivery phases.

4. Eligible costs

Construction businesses frequently underclaim by not fully identifying qualifying expenditure. A wide range of costs may be eligible, including:

• Staff costs for those directly and indirectly involved in R&D, including finance and administrative support
• Consumable materials used in testing, prototyping or scrapped during the build process
• Supporting activities such as project management and feasibility assessments
• Payments to subcontractors and specialist workers

Subcontractor costs in particular require careful analysis. Businesses should assess these on a case-by-case basis to ensure qualifying costs are identified and claimed appropriately, while excluding non-qualifying plant costs.

A detailed review of project-level data and general ledger information is often necessary to capture the full scope of qualifying expenditure.

5. The merged R&D scheme

From April 2024, the UK introduced a merged R&D Expenditure Credit (RDEC) scheme, bringing together the previous SME and RDEC regimes into a single framework.

These changes have:

• Removed certain restrictions linked to subsidies, improving access to relief
• Introduced updated rules around contracted-out R&D
• Increased the importance of identifying the correct claimant within complex supply chains

While the changes simplify some aspects of the regime, they also create new areas of interpretation, particularly for construction businesses operating across multiple contractual layers.

Turning innovation into value

With increased HMRC scrutiny, particularly across the construction sector, ensuring that R&D claims are accurate, well-evidenced and aligned with current guidance has never been more important.

When approached effectively, R&D tax relief can deliver meaningful benefits, including:

• Improved cash flow
• Reduced corporation tax liabilities
• Greater capacity to reinvest in innovation
• Enhanced long-term competitive positioning

We’re here to help

At Azets, our R&D specialists work closely with construction businesses to identify qualifying R&D activity, strengthen supporting documentation and navigate complex contractual arrangements.

If you would like to explore your eligibility or maximise the value of your claim, speak to one of our specialists today.