One in six companies has paid predevelopment costs since 2020, HMRC research finds
Feasibility studies, design fees and environmental assessments averaged £357,000 per business over five years, and a third of firms that run up these costs say they do not understand how they are taxed.
By Daily Oracles News Team2 min read
About one in six UK companies that pay corporation tax have spent money on the early planning stages of projects since 2020, and many of them are unsure how that spending should be treated for tax, according to research published by HM Revenue and Customs on Tuesday.
The study, carried out by Ipsos, looked at predevelopment costs: money spent before a building, plant or product is actually created. That covers project management, financial feasibility work, engineering and architectural services, market analysis and regulatory work such as environmental impact assessments. Capital allowances give tax relief on investment in machinery and property, but some of this earlier spending does not qualify, and HMRC said it previously had little data on how common or how large these costs were.
Ipsos surveyed 4,972 businesses and followed up with 20 interviews between August 2025 and March 2026.
How much firms spend
The survey estimates that 16% of businesses had incurred predevelopment costs since 2020, and 9% in the 2023 to 2024 financial year. The share rose with company size, from 27% of small businesses to 45% of large ones.
By sector, pharmaceutical companies led at 42%, followed by electricity and gas at 29%, and accommodation and food, education and automotive businesses at around a quarter each. Manufacturing stood at 22%.
The average total spent since 2020 was £357,000 per business, with £139,000 of that in 2023 to 2024. A third of all the predevelopment money spent over the period went out in that single year. London was the main location of spending for 26% of businesses, and the South East for 24%.
For most firms the early stage is a modest part of a project, with 39% saying it made up less than a fifth of total spending. But just over one in 10 said predevelopment accounted for 80% to 99% of the total. On average, two years passed between the first predevelopment spending and the start of delivery.
The tax question
Overall, 42% of businesses had deducted some of their 2023 to 2024 predevelopment costs from taxable profits. Only 36% agreed that they understood the tax treatment, while 31% disagreed. Among those who were unsure, 38% said the uncertainty affected their investment decisions and 58% said it did not.
Some 6% said costs incurred in 2023 to 2024 related to a project that never went ahead. Where that happened, firms deducted on average 57% of the money when working out their taxable profits.
In interviews, businesses said that where relief was not available it added to a project's financial risk. Several said they leaned on research and development tax credits where they could. In many smaller firms the issue was left to accountants and was rarely treated as a priority.
The fieldwork finished before a Supreme Court judgment in April 2026 that found the predevelopment costs in dispute in that case did not qualify for capital allowances, so the answers reflect the rules as businesses understood them beforehand. The research was published the day before the Budget.
