Information on answering questions about the costs related to the R&D project(s)
When you're going through the process of filling out your full R&D claim, you will have to give details of your R&D expenditure.
The amount and type of R&D expenditure would differ for each company based on the industry, products, stage and other factors but below are the costs that qualify most frequently under the SME scheme-
Costs of staff involved in R&D
These include salaries, wages, National Insurance and Employer’s pension contributions of the team members directly involved in R&D based on the proportion of their time spent on R&D, and a proportion of cost of employees involved in supervisory and managerial occupations for the R&D projects. These do not include the cost of administrative or clerical staff, and their bonuses.
The amount, or a proportion of that amount, paid to R&D staff hired temporarily through external agencies also qualifies as a R&D cost. However, you can only claim up to 65% of the payments made to the external agency and VAT paid as part of this would not qualify as a R&D cost.
Subcontractors for R&D
Your company can claim up to 65% of the payments made to unconnected subcontractors for R&D projects. You can claim up to 100% of the payments made to connected subcontractors. Your subcontractor does not need to be based in the UK. For example, if your UK based company has engaged software developers from Sweden to develop a unique software product, you can claim up to 65% of the payment made to the developers as R&D expenditure.
You may claim for costs for materials, water, fuel and power that have been consumed by the R&D process.
Software directly used in R&D
You may be able to claim the full costs (or a proportion) of the software directly used for R&D activities. For example, the amount spent on GitHub for the development of a SaaS product in an R&D project.
The design, construction and testing costs of a prototype to test the R&D undertaken may be claimed under the SME scheme. However, the costs associated with a prototype that is built for sale cannot be claimed under the scheme.
What costs don’t qualify as R&D expenditure?
Costs which you usually will not be able to claim under the scheme are those associated with the production and distribution of goods and services (such as sales and marketing), capital expenditure and payments for the use and creation of patents and trademarks. Dividends paid out to Directors also do not qualify as R&D expenditure, even if the Directors have participated in R&D activities on behalf of the company. However, if the Directors have contributed to R&D projects and are paid salaries, a proportion of their salaries would still qualify as R&D expenditure.
The reason why these costs do not qualify as R&D expenses under the scheme is that they do not involve significant risks and technical uncertainties.