Sectors •9 min read

R&D tax relief for construction

MJ

Matthew Jones ACA CTA

Last reviewed July 2026 · Editorial standards

Construction and the built environment produce genuine R&D, and they also produce claims that should never have been filed. Both have the same root: the work is hard, and hardness is not the test. The test is whether a competent professional could readily resolve the problem with knowledge already available. Ground that does not behave as the site investigation predicted, a structural form nobody has built at that span, a fabric performance target that standard detailing keeps missing: those are candidates. A demanding programme on a conventional building is not.

Construction also runs on layered contracts, and the contract decides who owns the claim. Get that wrong and the technical case never gets read.

What construction work qualifies as R&D?

Work seeking an advance in a field of science or technology through uncertainty a competent professional could not readily resolve. At concept level:

  • Ground engineering and foundations for conditions standard design methods and published data do not cover, where behaviour has to be established by instrumentation, trial and revision rather than deduced.
  • Novel structural methods and forms where established analysis, codes and precedent give no reliable answer, and the connection, the span or the erection sequence has to be proved by testing.
  • Materials performance under constraints, including substitution forced by availability or regulation, where a material must meet a combination of load, fire, acoustic, thermal or durability requirements no data covers.
  • Modern methods of construction and off-site manufacture: tolerance stack-up, jointing, transport loads and installation behaviour of systems not yet produced at that specification. This is process development in the sense our manufacturing page describes.
  • Retrofit and thermal performance where standard practice fails: existing fabric of unknown build-up, where the specified approach cannot be applied or misses the measured performance, and the route to the target has to be developed and tested.
  • Digital and BIM integration, but only on the system uncertainty test: the Guidelines allow uncertainty where a competent professional cannot readily deduce how standard components should combine to have the intended function, while assembly to an established pattern involves little or none.

Attempts that failed still qualify: the relief follows the work to resolve the uncertainty, not the outcome. The R&D project ends where the uncertainty is resolved or abandoned, so the qualifying core is usually a small part of a large contract. Claims drawn around that core survive questions; claims drawn around the contract value do not. Design-led firms should also read our engineering page.

What does not qualify?

Standard builds, however large or tightly programmed. Value engineering, where the object is the same specification at lower cost using known products: commercial gain, not an advance in technology. Applying an established method to a new site, which is most of what the sector does and does well; every site differs, but difference is not uncertainty. Aesthetic and planning-driven design changes. The ordinary difficulty of building to a deadline in the weather.

HMRC has warned about unscrupulous agents approaching businesses in sectors where qualifying R&D is rare and offering to file speculative claims for high commission. Construction is not one of those sectors; the technological work here is real. But construction claims attract scrutiny, and the definition does the filtering: whole-project claims covering the cost of a building, written around how difficult the job was rather than what was not known, are the ones that fail. HMRC checked around one in six claims in 2023-24, its latest published figure. Our guide to choosing an R&D tax adviser sets out the other warning signs.

Who owns the claim in a construction contract chain?

For accounting periods beginning on or after 1 April 2024 there is a statutory test. The customer claims where it intended or contemplated, when the contract was made, that R&D of that sort would be done. Where it did not, the contractor claims in its own right. A contractor whose customer is overseas, or otherwise outside the charge to UK corporation tax, can also claim in its own right.

Read down a contract chain and the answer changes at each link. A client who commissioned a defined programme of development work, described in the contract with its trials, mock-ups or testing regime, intended the R&D and claims it, including 65% of what it pays an unconnected contractor. A specialist subcontractor who took a performance specification priced as a package, with nothing in the tender or the employer’s requirements contemplating technical unknowns, and who then had to resolve genuine uncertainty to meet it, claims in its own right on its own costs. The main contractor between them may hold neither.

The value differs with the answer: a customer claiming contracted-out R&D includes 65% of its payments; a contractor claiming in its own right includes its own qualifying costs. The same R&D cannot be claimed twice, so claiming relief that belongs to the other side of the contract is an incorrect claim, with the repayment and penalty exposure that follows if HMRC opens an enquiry. Connected-party subcontracting follows different rules, and for current-scheme periods the work must be undertaken in the UK, subject to a narrow exception.

Why the contract wording decides it

The test looks at what the customer had in mind when the contract was made, and the evidence of that is documentary: the contract, the employer’s requirements, technical schedules, tender documents and the correspondence around them. No tribunal decisions yet interpret the new wording, so the documented position is the strong one. What no one can safely do is leave the question open and let both finance teams assume the claim is theirs. Our guide to contracted-out R&D works through the scenarios.

What about periods before April 2024, and Collins Construction?

The old SME scheme had no single definitive test for contracted-out R&D. The First-tier Tribunal confirmed that in Collins Construction Ltd v HMRC, a construction case, and Stage One Creative Services Ltd v HMRC, a creative design and construction business. HMRC declined to appeal either decision and updated its guidance in February and March 2025, weighing case by case the contract wording, whether the customer was aware R&D was needed, the contractor’s autonomy, who bore the financial risk and who kept the intellectual property. The tribunals also confirmed that payments under an ordinary commercial contract are not subsidies, a ground HMRC had used to restrict old SME claims where the R&D sat inside work a client was paying for.

Tribunal decisions bind only the parties and set no precedent, but where HMRC declines to appeal and rewrites its guidance to match, the practical effect is real. Be clear about the boundary, though: for accounting periods beginning on or after 1 April 2024, the statutory contracted-out test described above replaced the case-law position entirely, so Collins and Stage One do not decide who claims under the merged scheme or ERIS. This is enquiry-defence knowledge now rather than planning law, live for checks into old-scheme claims and for backdated claims covering periods still within the window, which closes in late March 2027. Our article on the tribunal verdicts covers what followed.

What is a construction claim worth?

Most construction businesses claim under the merged scheme: a 20% expenditure credit, so £100,000 of qualifying spend gives a £20,000 gross credit, netting to £15,000 at the 25% corporation tax rate and £16,200 where the 19% rate applies or the company is loss-making, subject to the PAYE cap. A loss-making SME whose R&D expenditure reaches 30% of its total expenditure can claim up to £26,970 on the same spend through ERIS, though that 30% threshold is a high bar for a business carrying large material and subcontract costs. The claim value calculator works either position.

Staff costs apportioned to development work cover site engineers, temporary works designers and supervisors, not only the design office. Agency staff qualify as externally provided workers at 65% where they are subject to UK PAYE, unconnected subcontractors at 65% subject to the question above, and software used in the R&D counts. Capital expenditure, rent and patent costs do not. Materials that end up in the finished works handed to your client fall outside the consumables claim — incorporating them into the structure does not break the transfer — but materials consumed getting there, in test panels, mock-ups, trial pours and rigs that never leave your yard, can still qualify as consumables, and sub-standard output sold only as scrap stays claimable.

What evidence does a construction claim need?

The sector generates good contemporaneous evidence and then files it against the cost report rather than the claim. Requests for information and technical queries record a question the field could not answer. Variation instructions and day-works sheets record work outside the priced scope, with dates and hours attached. Site diaries, temporary works designs and their revisions, monitoring data, trial panel records and test results, including the failures, show the uncertainty being worked through in real time.

Apportionment is the harder half, because people move between the qualifying core and ordinary delivery inside the same week. HMRC’s guidelines for compliance accept that R&D costs are often an estimated proportion of known expenditure, provided the estimate is arrived at using evidence and reason, the amount is based on facts, and the apportionment basis is recorded. Our page on what records an R&D claim needs sets out what to keep. Two deadlines sit alongside it: the Additional Information Form is mandatory for every claim, and first-time claimants must notify HMRC within six months of the end of the period of account or the claim is invalid.

Talk it through with a chartered adviser

LimestoneGrey is a firm of chartered tax advisers and chartered accountants specialising in R&D tax relief, regulated by ICAEW. If you build, engineer or fit out, we will give you a straight view on whether the work qualifies and on which side of your contracts the claim sits, and we will read the contract before anything is filed. Every claim is signed off by a chartered adviser, enquiry support is included as standard, and the fee is agreed before work starts.

Call 0330 223 4 223 or send us a message.

Written by Matthew Jones ACA CTA. Last reviewed July 2026.

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