Catherine McManus

A recent Federation of Master Builders survey highlighted that a crisis in the availability of building materials and a resurgent skills shortage were holding back smaller builders, with 98% of members experiencing material price increases through Q2 2021 and around 50% struggling to recruit for key trades.

Catherine McManus, tax partner at Wylie & Bisset, said owner/managed business confronting rising material prices should conduct a thorough cost review to identify what costs within their Profit and Loss accounts are controllable and could minimise the impact of material price rises.

“We are starting to see a greater degree of collaboration between SMEs in the construction sector who, in a bid to secure the best possible prices on the resources that are available, are working together, and potentially sharing resources,” she said.

“We also have clients in the sector who are seeking to diversify beyond the core markets they currently serve and, indeed, develop innovative products/services to assist their recovery from the pandemic.”

Ms McManus added that R&D tax relief can be claimed in the construction sector, for those who operate via limited companies, and advises construction companies to review their processes to determine if they qualify for R&D relief as they could get up to 130% additional qualifying costs in their Profit and Loss account with a successful R&D claim depending on their qualifying status.

Loss-making companies can get cash in hand of 14.5% on their qualifying surrenderable losses (R&D tax credit) again depending on their status.

She continued: “Rising costs and longer lead in times may lead to a rise in the number of loss-making companies/businesses in the construction sector.

“Such firms should note that there’s an extended short-term loss relief available for accounting periods between 1 April 2020 and 31 March 2022 for limited companies and for tax years 2020/21 and 2021/22 for unincorporated businesses, allowing a carry back of losses of up to three years instead of the traditional one year in many cases.”

On those facing skills shortages, Ms McManus advises SMEs to consider tax-efficient ways to incentivise staff, such as a tax-advantaged shares scheme, e.g. EMI.

“Rather than a one-off bonus or a salary hike, we are increasingly finding that clients are seeking to address staff retention and recruitment by considering longer-term incentives,” she concluded.