The costs associated with protecting your Intellectual Property (IP) cannot be claimed in a UK R&D Tax Credits claim, however significant costs relating to the generation of that IP can! These include R&D staff, materials, software and subcontractor costs.
The aim of any Research and Development project is to generate a technology step change, whether this takes the form of a product, process or software. The cost of developing these technologies can run from the thousands, to millions of pounds and represent a huge investment for the business.
Developing this new technology generates Intellectual Property (IP) which can be of considerable value to the business. In this article, we take a look at how IP costs can be used in an R&D claim.
It’s important to state up front that the cost of protecting your IP is not eligible for an R&D Tax Credits claim. The below is a list of these costs, that are related to either patents or deign registrations:
Further information about Patents, searches and fees can be found here Intellectual property: Patents – detailed information – GOV.UK (www.gov.uk) .
Details about Design Registrations are here Register a design – GOV.UK (www.gov.uk)
There are however a whole range of costs that are incurred when developing new technology and IP as part of an R&D programme that you can claim for!
Below, we take a look at the major cost categories involved in IP generation that can contribute to an R&D Tax Claim. More details for each qualifying cost category can be found here.
Usually the most significant chunk of eligible costs in a claim is for staff who are generating IP and directly contributing to the resolution of the technical uncertainties posed by the R&D projects. A high proportion of the staffing costs attributed to this group can be utilised in the claim. You can also include some staffing costs for team members undertaking specific indirect qualifying activities (purchasing, HR and maintenance amongst others), albeit generally at a lower proportion.
The cost of materials that are used or consumed during your R&D programme can sometimes be included in the claim. Claimable expenses in this category include prototype build material costs, uncapitalised equipment purchased for use in R&D work and materials consumed by R&D (this includes utility costs).
Software that is purchased/licenced for the purposes of R&D can also be used in your claim.
Subcontracting R&D as part of the project is often a significant underlying cost in the development of IP. The costs of subcontracting qualifying R&D to other businesses, individuals and Universities can be included in your claim if you are claiming under the SME scheme. Interestingly, these businesses can be based anywhere in the world!
In addition, if you hire technical staff through an employment agency who work under your control on R&D projects, you can include their costs too.
Along with IP protection costs, there are a number of costs that cannot be used in the R&D claim, which are nonetheless necessary for developing your IP. These include equipment hire, legal fees and the rental of buildings or space to carry out your R&D.
In the accounts for the business the costs for developing IP can be accounted for in the Profit & Loss as revenue costs or can be classed as Intangible costs on the Balance Sheet. Either way the costs are accounted for, it makes no difference to the R&D Tax Credits claim.
If you’re looking for additional help with your R&D Tax Credits claim, please contact us.