What costs qualify as R&D?
There are two categories of qualifying expenditure
Research and Development tax credits are claimed against the costs of qualifying R&D activities. There are two main categories of qualifying activity:
- Activities which directly contribute to R&D
- Qualifying indirect activities.
There are slightly different rules for Large Companies and SMEs (Small and Medium Enterprises). This article relates to the regulations for SMEs doing R&D. (SMEs are companies with under 500 employees and they must also have either less than 100m Euros turnover or less than 86m Euros on their balance sheet.)
The mains cost are set out below.
Staff salaries and labour
This includes all costs for staff carrying out direct or indirect R&D activities. It includes gross salaries + employer NI payments + employer pension contributions – e.g. if you have someone working 50% of their time on R&D 50% of their salary costs can be counted.
Agency staff or subcontractors
This covers any R&D related costs of employing agency staff or using subcontractors. The relevant costs can be counted at 65% of the amount invoiced to your company in respect of R&D activities. It does not matter whether the supplier is based in the UK or abroad.
Materials and energy consumed
If your R&D involves using up materials that get wasted, or other consumable item that are transformed and therefore no longer of value, including gas, electricity and water – the costs of the items consumed can be included in your R&D costs.
Direct R&D activities are things like:
- Adapting software, materials or equipment to support the R&D;
- Planning activities that are associated with scientific or technological aspects of the projects;
- Design, testing and analysis undertaken to resolve scientific or technological uncertainty;
- Complex software development or creation of physical prototypes e.g. for new gadgets or fittings;
- Carrying out manufacturing trials.
Qualifying indirect activities can only be claimed when carried out by your own internal staff – they include:
- Scientific and technical information services (such as writing a report on the R&D findings);
- Ancillary activities essential to undertaking the R&D (e.g. project management, taking on and paying staff, leasing laboratories and maintaining equipment including computers used for R&D purposes);
- Training required to directly support R&D projects;
- Research by students and researchers carried out at universities;
- Research (including related data collection) to devise new scientific or technological testing, survey, or sampling methods, where this research is not R&D in its own right;
- Feasibility studies to inform the strategic direction of a specific R&D activity.
Are you ready to find out if you qualify or how much your R&D claims could be worth?