In this article we look at the costs you can claim for Research and Development Tax Credits (R&D). Read our previous blog article for advice on the criteria for claiming R&D Tax Credits to help you find out if you could be eligible.
To qualify for R&D tax credits, costs must be attributed to revenue and not capital expenditure. There is a special Capital Allowances scheme for R&D related capital expenditure (RDA). If you have acquired any capital assets for your R&D projects and need more information on this, then please get in touch on 01438 750555 or email firstname.lastname@example.org
What costs can you claim back?
Only specific types of expenditure can qualify for R&D Tax relief, these are:
Employee costs: Staffing costs (including employer’s Class 1 National Insurance contributions and employers’ pension contributions) of directors and employees directly associated with the R&D activity. This will not usually include the costs of purely administrative and similar support staff; in some cases, an apportionment of costs will be appropriate.
Software: Computer software used directly in the R&D activity
Utilities: Water, fuel and power used directly for the R&D activity, apportioned where necessary, but telecoms or data costs are excluded.
Materials: Consumable and transformable items used directly for the R&D activity.
Staff Providers: Payments to an agency or other staff provider for workers who are externally provided and who are directly and actively engaged on R&D. Normally the claimable cost is based on 65% of the payment actually made, unless the claimant and the staff provider are connected companies (or elect to be treated as connected companies) then 100% of the payment may be claimed. (A company is connected with another company if either the same person has control of both companies (or that person and a person connected with him together have control of both companies), or if a group of two or more persons has control of each company and the group consists of the same persons (or could be regarded as consisting of the same persons if one member is replaced with another person with whom he is connected). A company is connected with another person if that person has control of it or if that person and persons connected with him together have control of the company. A person or a company has control if it is able to exercise, or is entitled to acquire, direct or indirect control over the company’s affairs and possessions, or is entitled to acquire the majority of the shares or voting rights or distributions or assets on an eventual winding up of the company)
Sub-contractors: Payments by a company to another person for R&D work to be carried out on behalf of the company (sub-contractor payments). The claimable cost is based on 65% of the payment made unless the claimant and the sub-contractor are connected (or elect to be treated as connected) then 100% of the payment may be claimed.
Other factors that can affect your claim
Grants or subsidies: If a grant or subsidy is received for some or all of the costs of an R&D project, this can affect the amount of costs that may be claimed as R&D Tax Relief.
Other benefits: Benefits in kind are excluded where provided in a non-cash way. So car and fuel benefits, living accommodation, vouchers and the like, are all excluded. Cash reimbursements of expenses or other reimbursements with salary are not excluded. Expenditure is reimbursed if the cost is initially borne by the employee. So, for example, expenditure incurred by an employee using a credit card in the name of the company would not be reimbursed expenditure because the cost was not initially borne by the employee.
Further information about claiming R&D Tax Credits is available from the HMRC – alternatively, why not let Baker Watkin do the hard work for you?
If you are interested in finding out more about the scheme and are curious to know whether your projects qualify for R&D Tax Credits, we can help. The initial investigation into your claim will cost you nothing but a small amount of your time, and no commitment to continue is required on your part.