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 for your R&D Claim -
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.
Externally Provided Workers for R&D
An Externally Provided Worker is defined as someone who you pay on a time and materials basis. They might be a developer or a freelancer, perhaps you pay for them through a separate agency like Fiverr. The distinction between EPW and subcontractor, is that an EPW works under your 'supervision, direction and control'. Your company can claim up to 65% of the payments made to unconnected EPWs for R&D projects. You can claim up to 100% of the payments made to connected EPWs.
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.
If your project qualifies under the RDEC Scheme, you may not be able to claim subcontractor costs. Whether you can claim for subcontractor expenses depends on who the contractor is. You can claim for 65% of subcontractor costs if the work is done by:
- a charity
- a higher education institute
- a scientific research organisation
- a health service body
- an individual or partnership of individuals
Consumable Items
You may claim for costs for materials, water, fuel and power that have been consumed by the R&D process. These costs will however need to be apportioned, which can be calculated via the staff cost ratio. For that, you need to take the total R&D staff cost, and divide it by your Total staff cost - this will give you an R&D intensity percentage which can be applied to the consumables.
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.
Prototypes
The design, construction and testing costs of a prototype to test the R&D undertaken may be claimed for your R&D claim. However, the costs associated with a prototype that is built for sale cannot be claimed under the scheme.
Payments to Clinical Trial Participants
Pharmaceutical companies and research organisations often make payments to volunteers taking part in clinical trials. You can claim this back as an R&D expense.
Data licences and Cloud Computing Costs
For any companies whose financial period starts on/after 1st April 2023, you will be able to include these costs in your claim. This is great news for companies who use cloud-based services and rely on data for their research.
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.