Can a Construction Company Claim R&D Tax Credits for Developing New Materials?

Yes, absolutely. If your construction company is developing new materials, improving existing ones, or creating novel building methods that resolve a technical uncertainty, you can claim R&D tax credits. The misconception that R&D claims are only for tech startups and pharmaceutical companies costs the construction sector millions each year.

HMRC's R&D definition is broader than most business owners realise. It covers projects that seek to achieve an advance in science or technology, or resolve a scientific or technological uncertainty. That advance does not have to be world-first. It just has to be new to your field of construction and not readily deducible by a competent professional in that field.

As ICAEW qualified accountants, we regularly see construction firms leave significant tax relief on the table because they assume their work is "just building things". It is not. When you develop a new concrete mix, a novel cladding system, or a waterproofing membrane that behaves differently from anything on the market, you are doing R&D.

What Qualifies as R&D in Construction Materials Development?

HMRC looks for projects that overcome a scientific or technological uncertainty. In construction materials, that uncertainty often centres on how a material behaves under specific conditions: load, temperature, moisture, fire, chemical exposure, or long-term degradation.

Qualifying activities typically include:

  • Developing a new concrete mix with specific strength, weight, or thermal properties that existing mixes cannot achieve
  • Creating a composite material that bonds materials in a way that has not been done before
  • Designing a coating or sealant that must perform in conditions where no existing product works reliably
  • Developing a new insulation material that meets fire safety standards while maintaining thermal performance
  • Creating a new method for recycling construction waste into a usable building material
  • Developing a structural element that uses a novel geometry or material combination to solve a specific engineering problem

The key test is that you faced a technical problem you could not solve by applying standard industry knowledge. If you simply chose a material from a catalogue and installed it, that is not R&D. If you spent months testing variations because no existing material met your requirements, you are in R&D territory.

What Does Not Qualify?

Routine design, standard material selection, and normal quality control testing do not qualify. If you are testing a material to confirm it meets a published British Standard, that is not R&D. But if you are testing a material because no standard exists for the performance you need, and you are creating the test methods and criteria yourself, that likely qualifies.

Likewise, aesthetic design changes do not count. Painting a facade a different colour is not R&D. Developing a paint that reflects 95% of solar radiation in a climate where existing paints fail within 12 months is R&D.

Which Costs Can You Claim for Materials R&D?

The costs you can claim depend on whether your company qualifies for the merged R&D scheme (for accounting periods starting on or after 1 April 2024) or the pre-April 2024 rules. For most construction companies, the current rules apply.

Qualifying costs for materials development typically include:

  • Staff costs: Salaries, employer NI, and pension contributions for employees directly involved in the R&D. This includes materials engineers, lab technicians, project managers overseeing the R&D work, and directors who spend time on the project.
  • Consumable items: Raw materials used in experiments and prototypes. If you buy 500kg of a new polymer blend to test 50 different formulations, the cost of that material is qualifying. You must deduct the value of any items you sell (e.g., prototype panels sold to a client).
  • Software: Software licences used directly for R&D, such as finite element analysis tools, thermal modelling software, or materials simulation packages.
  • Externally provided workers: Subcontractors or agency staff working under your company's supervision on the R&D project. The rules differ depending on whether you use the merged scheme or the pre-April 2024 rules, but in most cases you can claim 65% of the payments.
  • Clinical trial costs: Less relevant for construction, but if you are testing materials for human safety (e.g., air quality testing of new insulation), these may qualify.

Capital expenditure on plant, machinery, or buildings used for R&D is not a direct qualifying cost. But you may be able to claim capital allowances on that expenditure separately.

A Worked Example: Manchester Cladding Company

A construction firm in Manchester's Northern Quarter spent 18 months developing a new fire-resistant cladding panel. The project involved testing 30 different core material formulations, building a custom test rig, and working with a materials science consultancy. Their qualifying costs were:

  • Director time (40% of working hours): £28,000
  • Lab technician salary (100%): £32,000
  • Consumable materials (polymers, adhesives, fire retardants): £18,500
  • Software licence (thermal modelling): £4,200
  • Subcontractor (materials consultancy): £22,000 (65% qualifies: £14,300)

Total qualifying costs: £96,700. Under the merged scheme, the company could claim a payable tax credit worth up to 15% of that figure if it was loss-making, or reduce its corporation tax bill by 19-25% of the qualifying costs if profitable.

How Much Could Your Construction Company Receive?

The amount depends on whether your company is profit-making or loss-making, and whether you qualify as an R&D-intensive loss-making company (spending at least 30% of your total costs on R&D).

For a profitable construction company, the benefit comes as a reduction in your corporation tax liability. If your qualifying R&D costs are £100,000, you can deduct 86% of that (for the merged scheme, the enhancement rate is 86% for most companies) from your taxable profits. That means £86,000 less profit subject to corporation tax. At 19% (small profits rate), that saves you £16,340. At 25% (main rate), it saves £21,500.

For a loss-making company, you can surrender the loss created by the R&D enhancement and receive a payable tax credit. Under the merged scheme, the credit is 15% of the surrendered loss. If your R&D costs created a £100,000 enhanced loss, you could receive up to £15,000 in cash from HMRC.

For loss-making R&D-intensive companies (the ERIS scheme), the payable credit rate is higher at 27%. If your construction company spends more than 30% of its total costs on R&D and is loss-making, this is worth exploring.

Common Pitfalls for Construction Companies Claiming R&D

The most common mistake we see is construction companies not documenting their R&D activity properly. HMRC expects to see a clear narrative of the technical uncertainty you faced, the steps you took to resolve it, and the advance you achieved. A simple invoice for "materials testing" will not suffice.

Other pitfalls include:

  • Claiming for routine testing: Testing a material to confirm it meets a published standard is not R&D. Testing a material because no standard exists for your application is R&D. The difference is critical.
  • Ignoring director time: Many construction directors spend significant time on R&D but do not record it. If you are the person deciding which formulations to test, analysing results, and directing the technical work, your time qualifies.
  • Overlooking subcontractor costs: If you pay a materials lab to run tests under your direction, those costs qualify (subject to the 65% rule for externally provided workers).
  • Not deducting sold items: If you sell prototype materials or panels to a client, you must deduct the sale proceeds from your consumable costs. HMRC checks this.
  • Claiming for capital equipment: The cost of a test rig or mixing machine is not a direct R&D cost, but you can claim capital allowances on it. Do not include it in your R&D cost calculation.

How to Prepare a Robust R&D Claim for Construction Materials

Preparation starts during the project, not after. The strongest claims come from companies that keep a contemporaneous record of their R&D activity. That does not mean a formal lab notebook. It means emails, meeting notes, test results, design drawings, and project plans that show the technical journey.

For each R&D project, you should be able to answer these questions:

  • What was the technical uncertainty you could not resolve using standard practice?
  • What did you try that did not work?
  • What did you try that eventually worked?
  • What was the advance you achieved?
  • Who worked on the project and for how long?
  • What materials and subcontractors did you use?

HMRC publishes guidance on preparing a technical report for R&D claims. The report should be written in plain English, avoiding unnecessary jargon. It should explain the problem and the solution in terms a non-specialist can understand.

Using the Right HMRC Forms

Your R&D claim is submitted as part of your company tax return (CT600). You need to complete the R&D supplementary pages and, for the merged scheme, the Additional Information Form (AIF). The AIF must be submitted before you file your CT600. It asks for detailed information about your R&D projects, costs, and the technical advance achieved.

If you are claiming under the pre-April 2024 rules (for accounting periods starting before 1 April 2024), you would have used the old claim notification and additional information forms. The rules changed for accounting periods starting on or after 1 April 2024, so check which rules apply to your company's year-end.

Should You Use an Accountant for Your R&D Claim?

R&D tax credits are one area where professional advice almost always pays for itself. The technical and financial reporting requirements are detailed, and HMRC has become more aggressive in reviewing claims, particularly in sectors like construction where they see a higher proportion of incorrect claims.

An ICAEW qualified accountant who understands construction R&D can help you identify qualifying projects, calculate costs correctly, and prepare the technical narrative. They can also handle the AIF submission and any HMRC enquiries that follow. The cost of the advice is typically far less than the additional relief you would miss or the risk of a rejected claim.

If you are developing new materials or construction methods, speak to our team at Holloway Davies. We work with construction companies across the UK, from Birmingham's Jewellery Quarter to Glasgow's Merchant City, helping them claim the R&D relief they are entitled to.

Final Thoughts on R&D Tax Credits for Construction Materials

Construction companies developing new materials are doing genuine R&D. The sector has been under-claiming for years, partly because business owners do not realise their work qualifies, and partly because the documentation requirements feel daunting. Neither reason should stop you from claiming what you are entitled to.

If your company has spent time and money developing a new material, improving an existing one, or creating a novel construction method, review your recent projects against the R&D criteria. You may be sitting on a significant tax relief that is rightfully yours.

For a detailed breakdown of how R&D tax credits work across different business structures, see our R&D tax credits fundamentals guide. If you want to estimate your potential claim, try our R&D tax credits calculator.

And if you are ready to discuss a claim for your construction business, contact our team. We will tell you honestly whether your project qualifies and what the likely benefit would be.