The Construction Leadership Council (CLC) is urging the government to drop wording it says would harm the construction industry from proposed legislation to reform R&D tax credits.
Between January and March this year, the government consulted on the merger of the research and development expenditure credit (RDEC) and the small and medium-sized enterprise (SME) R&D tax relief.
In July it published a bill for changes to “keep open the option” to merge the schemes from April 2024.
The government says a merger would be “a significant opportunity for tax simplification, providing greater clarity and certainty for SMEs and helping to drive innovation in the UK”.
But in a letter to chancellor Jeremy Hunt, CLC co-chairman Mark Reynolds wrote that the plans would have a “damaging effect” on the construction industry by directing a “large proportion” of its tax credits to R&D towards their customers.
These would include “property developers, landowners and other wealthy UK clients who may not be the performers or even the instigators of the R&D”.
The construction industry is “very concerned” about a section of the draft law that aims to prevent tax credits from being claimed for “activities that have been ‘contracted’ with the claimant or considered ‘subsidised’ by a client”, it said. Reynolds said.
In the response, sent in September, Reynolds said this could lead to a scenario where “the contractor and others in the supply chain carry out the R&D activities as part of the construction, but the customer get the tax credit”.
The letter said the section “unfairly harms the construction industry because, by its very nature, construction is a service industry that only undertakes projects once the work has been contracted”.
He concluded that the draft legislation is “set to seriously damage the level of investment in R&D in the construction sector, thereby causing job losses and reduced productivity”.
The CLC is asking the government to amend the relevant section to make it clear that it refers to “outsourcing R&D activities” and to remove the reference to “subsidized”.
The council is also urging officials to delay the merger plans to allow further consultation and work with industry to ensure the changes do not reduce investment in R&D in the construction sector.
The letter explains that “clients often expect their construction contractors to lead innovation and take risk and the construction industry should not be denied credit for encouraging and rewarding risk-taking.”
According to Reynolds’ letter, construction received £375m in R&D tax credits in 2020/21.
The government says it will make a decision on whether to merge the schemes at the “next fiscal event”.
Chancellor Jeremy Hunt’s Autumn Statement is due to be announced on 22 November.
