What Costs Can I Claim?
Not all costs associated with a project can be claimed. Make sure you seek advice from a specialist R&D consultant
What are R&D Tax Credits?
The UK R&D tax credit incentive is extremely generous and allows companies who undertake qualifying R&D projects to recover a significant proportion of their R&D spend. In fact, a profit-making SME can recover an additional 26p for every £1 of R&D spend, this is on top of the 20p tax relief it is already entitled to (based on a 20% corporation tax rate). Although not as generous, the large company scheme still offers a worthwhile cash benefit, and allows qualifying companies to recover an additional 8.8p for every £1 of qualifying R&D expenditure (again, this is on top of the 20p tax relief already obtained).
What Costs Can I Claim?
Not all expenses associated with your R&D projects will qualify. There are 5 broad categories of allowable expenditure. These include:
The payroll costs of employees directly involved in R&D activities and those indirectly involved (e.g. in supporting activities) may be claimed. These costs include gross wages or salary, employers’ national insurance contributions and employers pension contributions. It is even possible to include accrued bonuses, provided these are paid before the claim is submitted. Note that dividends are not an allowable expense for R&D purposes.
Reimbursed travel expenses may also be claimed, but crucially only if they have been borne personally by the employee and subsequently reimbursed. If the expense was paid directly by the company or on a company credit card it cannot be claimed.
If your R&D activities are in the realm of medical science you may also include any payments to clinical trial volunteers.
The cost of any externally provided workers involved in the R&D projects may also be claimed.
Subcontracted R&D Activities
The cost of any R&D activities outsourced to third parties may also be included e.g. testing services, design of components and so on.
The cost of materials used up during or transformed by the R&D activities may be claimed. These materials must not later be reused in a sale. Effectively they need to have been “wasted” on R&D activities.
It is also possible to claim a reasonable proportion of any light, heat and water costs for the premises where the R&D is undertaken.
The cost of any software used on the R&D projects may also be claimed.
Location and Timing
R&D claims work by inflating revenue expenses included in the profit and loss account for the accounting period in which the claim relates. Therefore, it goes without saying that the above costs must be included in the profit and loss account and in the correct period.
The exception to this rule is when the expenses have been capitalised as development costs in intangible fixed assets on your balance sheet. If they have been capitalised to intangible fixed assets they can still be claimed.