Eligible R&D Costs
Once you are sure that your business is undertaking R&D according to HMRC's definition, you'll need to identify which costs you'll be eligible to claim against. This list takes you through the most common costs businesses claim for:
You can claim for salaries for staff directly involved with the R&D project. Staff costs can also include class 1 NIC, pension fund contributions, some reimbursed expenses and bonuses.
Items that are directly employed and consumed in the R&D projects can also qualify. This includes physical materials and hardware as well as utilities such as the cost of power, water and fuel used directly for carrying out R&D.
Software that is directly employed in the R&D projects can also qualify. If only a part of the software was used directly in R&D, then an appropriate proportion of the cost of the software can qualify.
The costs of testing the design and construction of a prototype following an R&D project will normally qualify. Note that if the prototype was created with the view of selling it after its construction then HMRC considers this to be outside the R&D scheme (even if R&D was undertaken to construct the prototype).
These are the staff costs paid to an external company for staff who are directly involved with the R&D project. They are not employees or subcontractors. You can claim up to 65% on the payments made to the external staff provider.
As a rule of thumb, you can claim for 65% of the payments made to "unconnected" subcontractors in the SME scheme. However, you can qualify between 0-100% of the expenditure if the subcontractor is a connected party (i.e. a parent company, a subsidiary etc.).
Large companies can claim this as an eligible R&D cost. The research must be relevant to your field or scientific pursuit. It should also be conducted either by an "individual or partnership of individuals", or "a qualifying body". A qualifying body would be a charity or higher education institute, or a named scientific research body.
Attracting volunteers into a clinical trial is often an expensive process. The costs associated with both attracting and paying for volunteers can be claimed for.
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EmpowerRD Covid-19 response
How we're helping businesses with their cash flow during the downturn.
Which scheme should I apply to?
An overview of the two R&D tax credit schemes available.
Is my business eligible?
Find out if the activity undertaken by your business can qualify as R&D.
How much can I claim?
Read how different accounting positions can affect how much you're able to claim.
What evidence is required to make an R&D claim?
Learn about the different pieces of evidence required for different R&D costs.
The most common queries we hear about the R&D scheme.