R&D Tax Relief for Inspiration through Innovation.

Article | Anil Arora | 10th December 2019

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Architects are passionate about the designs they create and can feel rightly proud when they look back at their creative legacy. The cost of the project and the environmental impact are primary considerations, but the tax aspects of the project are usually left to the accountants. The buyer will be interested in capital allowances that can be claimed, but the architect may also be entitled to tax relief in the form of research & development (“R&D”) tax credits. In this article I wanted to focus on this often overlooked tax relief and the important part it can play in the design of new buildings.

The phrase that “we’re a product of our environment” has often been used to rationalise human behaviour. However, psychologists have since demonstrated that buildings and cities can have a huge impact on our mood and well-being. Historically, architects were focused on designing something unique or iconic with less thought about how that structure may impact the behaviour of its inhabitants. Indeed, Winston Churchill, when considering the repairs required to the bomb ravaged House of Commons noted: “we shape our buildings and afterwards our buildings shape us”.

Neurologists have identified specialised cells in the hippocampal regions of our brain that are attuned to the geometry and arrangement of the spaces we inhabit. With a greater focus being placed on mental health, architects are having to pioneer designs that are not only awe inspiring and environmentally compatible but are also sustainable for societal demands. With so many factors to consider, it is no wonder that architecture is one the most innovative professions. Its practitioners are constantly rejecting the status quo and cultivating an appetite for out of the box thinking.

UK Architecture at the forefront of innovation

UK architects are globally renowned for their experimental, versatile and futuristic techniques which continue to produce results that challenge the prevailing convention. In addition to this, architects are spearheading leading-edge, low carbon and sustainable designs which meet social and environmental needs. Great architecture comes from a process of investigation which considers the spatial development of the project, how it should be constructed and which materials to use. Careful consideration of these components results in the delivery of a structure that is literally breaking new ground.

Research & Development defined

The Department for Business, Innovation & Skills (“BIS”) guidelines consider research and development (“R&D”) to “… take place when a project seeks to achieve an advance in science or technology.” Additionally, “the activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.” With so many unknowns to consider and technical issues to resolve, architecture is a sector that depends upon continuous research and development. As buildings become more complex, the design process often includes unique research. As such, where R&D is being undertaken, certain costs of the project will qualify for additional tax relief that can be reinvested in future architectural R&D activities.

Is Architecture Art or Science?

Before considering which elements of a project qualify for R&D tax relief, the question above requires a moment of reflection. The reality is; it is both! Architecture has been described as: “the balanced integration of artistic sensibility and scientific methodology as it applies to designing buildings and their environments”. The American architect Buckminster Fuller summarised it when he said “When I’m working on a problem, I never think about beauty. But when I’m finished, if the solution is not beautiful, I know it’s wrong.”

Where is the R&D in architecture?

When considering the design of a new building, architects are continually faced with challenges that cannot be resolved by conventional wisdom. In many cases, a new methodology must be contemplated and devised to resolve the uncertainty. New designs and new technologies are continually being utilised to resolve those technological problems. With advances in 3D printing, design software and computer modelling, architecture is thriving on innovation and directly challenging what was previously considered achievable.

As a profession, architects are adapting technologies to improve the performance of materials, products and processes. Advances in testing and prototype design to allow earlier identification of design flaws is a perfect example of how R&D is being undertaken by this sector. Similarly, architects may need to erect buildings in remote or confined spaces which requires unique and creative solutions.

Visualisation

Whilst most innovation and technological advancement will occur at the design phase, R&D in design software and interlinking it with modelling, 3D printing as well as fabrication are further examples of how this profession is dramatically evolving through innovation. Advances in computer-aided design (CAD) tools are enabling architects to manipulate their designs in real time and simulate or stress test the impact of different materials.

The ability to visualise accurate models to help interrogate designs, to provide not only a greater sense of realism and identify flaws have become a reality through advances in CAD tools. These advances have enabled architects to assess how bespoke materials and lighting options could enhance the aesthetics of a building and thus understand how inhabitants would react to the atmosphere being created. The late Zaha Hadid noted “Architecture is really about well-being. I think that people want to feel good in a space. On the one hand it’s about shelter, but it’s also about pleasure.”

Construction & 3D Printing

Once the initial design has been conceptualised, the next phase of the project is how to bring the design to life. 3D printing has revolutionised the profession allowing architects to convert digital designs into physical models which can be examined and further tested. Additionally, tools can be used to quantify energy consumption and to gauge how the design will fair in extreme weather conditions and natural disasters. Developing these tools and using these methodologies involves considerable research and development.

The Benefits of R&D Tax Credits

With architects having to resolve so many of these challenges through creative thought and innovative design, this profession is undertaking the type of R&D that could potentially attract R&D tax relief from H M Revenue & Customs. Historically, architects have seen their problem solving as “a normal part of their job”, however, as this article has sought to demonstrate, innovation resides at the heart of this profession. Why not therefore unlock the tax benefits of the inspiration behind your innovation through R&D tax credits?

R&D tax relief is only available to companies that have invested resources developing new or improved products, processes and software. Under the SME R&D tax credit scheme, your company could claim an enhanced tax deduction from 1 April 2015 of up to 230% of qualifying expenditure, significantly reducing your company’s tax bill. Profit making companies will receive a 24.7% tax saving on their qualifying expenditure.

It is also possible for a loss-making SME business to claim a cash credit of up to 33.35% of their qualifying R&D expenditure. Larger companies may benefit from the R&D Expenditure Credits (“RDEC”) regime.

PEM have assisted numerous clients to unlock the benefits of R&D tax credits and helped them grow their businesses through this valuable relief. To see how we can help your business benefit from R&D tax credits please contact us for a no obligation discussion to assess your eligibility for a claim. Please contact Derek Carr (dcarr@pem.co.uk), or Anil Arora (aarora@pem.co.uk), to find out more.

About the author

Anil Arora

Anil is an Assistant Director in our Business Tax team, specialising in technology and property companies. He joined PEM in Read more …

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