Advice & Best Practice

How tax relief for RoCL can eclipse R&D tax credits

By Rachel Brett, tax team manager at Catax

R&D tax credits might be the business relief that dominates accountants’ time but in some ways it’s not as generous as one of the most niche tax benefits going.

Remediation of Contaminated Land (RoCL) tax relief has been around nearly as long as the R&D tax credit scheme — launched a year later in 2001 — and it makes up a tiny fraction of the overall number of claims received by HMRC each year.

However, it has been specially designed to turn heads because ridding sites of pollution and bringing them back into use is central to the government’s environmental and development strategy.

The main way the government has made RoCL more generous is by ensuring that 100% of subcontractor costs can be included in claims. This is in recognition of the fact that, unlike R&D, companies rarely have the expertise in-house to be able to do the work themselves.

This is because most firms will rarely need to consider decontaminating land and therefore have no need to maintain this expertise themselves.

So, under RoCL provisions, 100% of the qualifying costs borne by the subcontractor are claimable, which encourages companies to undertake this sort of work. In contrast, they are capped at 65% under the R&D tax credit scheme.

The RoCL is more generous in another way too. Qualifying losses can be surrendered for a tax credit at 16% under RoCL, whereas this falls to 14.5% for the R&D tax credit scheme.

Obviously, because claims are less common under RoCL, R&D tax credits will continue to be the biggest source of tax benefits. However, misunderstanding how much RoCL has to offer could influence whether an accountant thinks it is worth recommending a claim to a client at all.

Some remediation works will be minor, while others involve the full range of qualifying costs needed to remove asbestos, Japanese Knotweed, heavy metals, fuel leaks and arsenic.

The relief was extended in 2009 to include derelict land and qualifying costs also include the removal of old structures, concrete bases and utilities.

What qualifies?

The cost of materials (i.e. concrete barriers used to contain the contaminant in the ground) and labour both qualify.

Even where staff at a claimant company are involved in RoCL, staff costs for their time are rarely claimed because labour is subject to an 80/20 rule. This means that, if a staff member spends less than 20% of their time on RoCL, none of their costs can be claimed. Claimant company employees will almost never spend more than 20% of their time on RoCL.

In rare circumstances where they do, the entire cost of employing that person can be claimed if they spend more than 80% of their time on RoCL. Those staff who spend between 20% and 80% of their time on qualifying activities are claimed for the proportion of time they spent carrying them out.

Specialist subcontractor staff costs are, of course, claimable alongside professional advice, fencing and security costs incurred as a result of the work. The cost of preparatory work (as long as the remediation goes ahead) also qualifies — for example, surveys and excavations.

If any materials or contaminants have been sent to landfill, the landfill tax will not be claimable. Similarly, the hire of plant and machinery is not an allowable expense for relief.

This is a broad overview of the costs that can be claimed under RoCL, however, there are many more complex rules within the legislation so seek specialist advice if you are unsure in order to maximise a claim.

Remember, land or buildings must be owned by a limited company at the time the remediation work is carried out and it must be owned either as a freehold or a leasehold of at least seven years.

Byline by Rachel Brett tax team manager at Catax.

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