Finding R&D in Everyday Building Services Engineering, and Seeing a Claim Through HMRC Questions

This case study follows a building services engineering consultancy whose projects looked like ordinary client work, but whose claim for the year ended 31 March 2024 turned out to be worth far more than its small profit for that year would suggest.

The client

The client is a building services engineering consultancy in south-east England. It has traded for more than a decade and has grown by about 25% a year for five years, mostly through repeat work and recommendations from existing clients.

The challenge

Three problems needed solving before a claim could be filed.

• Recognising the R&D. Day to day, the company's projects looked like routine engineering. Which of them involved genuine technological uncertainty?
• Recording it properly. For each qualifying project, the competent professionals, the uncertainties and the advances all had to be written up to the standard HMRC expects.
• Making full use of the relief. Profit for the year ended 31 March 2024 was small, so the benefit had to be spread over more than one year.

What we did

Our team went through the company's work and settled on five projects where real uncertainty existed:

• refurbishing the control systems of a dynamic rotary UPS power plant;
• supplementary heating works;
• adjusting the automation control at a sewage treatment plant;
• a kitchen grease management system; and
• an electrical infrastructure upgrade.

We then produced a 46-page report setting out, project by project, who the competent professionals were, what was uncertain and what advance was achieved. A 23-page additional information form was prepared alongside it, and the claim went in with the company tax return under the SME scheme rules that applied to that period. When HMRC came back with questions, we answered them from the documented technical case.

The outcome

• The total R&D deduction available was £369,523.
• It wiped out the year's taxable profit of £58,014 and brought a repayment of £11,624 of corporation tax.
• It then absorbed the following year's profit of £258,920, saving £64,730.
• The remaining £52,589 was carried forward to the year after, worth a further £9,992 to £13,147 depending on the rate.
• Across the three years, the total tax saving was about £86,000 to £89,500.
• HMRC raised questions on the claim. We answered them, and the enquiry closed with the claim standing and no reduction.

What it shows

Work that seems routine can hide genuine uncertainty, and careful selection and documentation are what bring it out. The relief can also be used across several years, so a small profit in the claim year does not limit the benefit. And when HMRC does ask questions, a claim built on evidence is one that can be defended. To see how the current rules work, read our page on R&D tax credits.

Companies claiming R&D tax relief can find more detail at our specialist practice, R&D Tax Partners.