What R&D Costs Can You Claim?

Introduction

If your company carries out research and development work, you can claim tax relief on a range of qualifying costs — but only those directly related to resolving scientific or technological uncertainty. This article explains which staff costs, consumables, and other expenses are eligible for R&D tax relief, and the rules you need to follow when making a claim.

When R&D costs qualify

You can only claim costs that fall within the period when your R&D project is active. R&D starts when work begins to resolve the scientific or technological uncertainty and ends when that uncertainty is resolved, or the work to resolve it stops.

Importantly, you must have already paid the cost before you can claim the tax relief. Costs that have not been paid before the claim is made are not eligible.

Direct R&D activities and qualifying indirect activities

You can claim allowable costs that relate to your direct R&D activity and also costs for 'qualifying indirect activities'. Qualifying indirect activities are tasks that form part of the project but do not directly contribute to resolving the uncertainty.

Qualifying indirect activities include:

• Scientific and technical information services, such as preparing the original R&D findings report
• Maintenance
• Security (as long as it relates solely to the R&D project)
• Administration
• Clerical activities
• Finance and personnel activities
• Maintaining R&D equipment, including computers used for R&D purposes, if essential to carry out the R&D
• Research by students and researchers carried out at universities
• Research (including related data collection) to create 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

Staff employed by your company

Staff working on the R&D project

You can claim staff costs for the time employees spend working on the R&D project. This includes:

• Salaries
• Wages
• Bonuses
• Pension fund contributions
• Secondary Class 1 National Insurance contributions paid by the company
• Staff training costs

If a member of staff spends 90% of their time working on R&D activities and 10% of their time working on other activities in your company, you can claim 90% of their salary.

Staff carrying out supporting activities

You can claim a proportion of the staff cost for anyone who carries out work to support the project but does not directly contribute towards the resolution. This includes administrative or support staff, such as:

• Human resources staff used to recruit a specific person to work on the project
• Specialist cleaning staff

If the staff member has other duties, you can only claim the cost for the time they've spent carrying out the task that supported the R&D work. You cannot claim 100% of the staff cost.

Staff costs you cannot claim

You cannot claim for:

• Redundancy payments
• Staff costs for clerical or maintenance work that would have been done anyway, like managing payroll

Staff supplied by an employment agency or staff provider

These costs are sometimes known as 'externally provided worker (EPW) costs'. What you can claim depends on whether the staff provider is connected to your company.

Staff providers connected to your company

You can claim the lower of either:

• 100% of the staff provision payment made by your company, or
• 100% of the costs incurred by the staff provider for supplying the workers

Staff providers not connected to your company

You can claim 65% of the staff provision payments made to a staff provider for supplying the workers.

R&D work contracted by another company

The rules around claiming for contracted R&D work changed on 1 April 2024.

For accounting periods beginning on or after 1 April 2024

Only the company who makes the decision that R&D needs to be carried out can claim the tax relief.

If your company has been contracted to do R&D work, you can claim for the allowable costs if you can provide evidence that shows your company:

• Made the decision to carry out the R&D
• Planned the R&D

The company you're doing the work on behalf of must not have initiated the R&D or known this needed to be done to fulfil the contract.

For accounting periods beginning before 1 April 2024

You could only claim the allowable costs for work contracted to you by:

• Large companies
• A person not liable to UK Corporation Tax

If any other type of person or company contracted the work to you, you could not claim the costs.

Grants and subsidised costs

The rules around claiming for subsidised costs also changed on 1 April 2024.

For accounting periods beginning on or after 1 April 2024

There is no restriction on claiming for subsidised costs under the merged scheme or enhanced R&D intensive support (ERIS).

For accounting periods beginning before 1 April 2024

Different rules applied depending on whether you were an SME or large company, and whether you received notified state aid or other grants. If you're claiming for costs from these earlier periods, you'll need to check which scheme you should use for any subsidised costs.

Consumable items

Consumable items are things that are used up in the R&D process. You can claim costs for consumables that are directly used in your qualifying R&D activities.

Sources

• Check what Research and Development (R&D) costs you can claim
• Research and Development (R&D) tax reliefs: new contracting out rules and overseas restrictions - draft guidance
• CIRD82150 connected persons

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.