What is R&D qualifying expenditure?

 R&D Qualifying Expenditure

A huge array of R&D qualifying expenditure can contribute to an R&D Tax Credits claim, and eligible or qualifying activities will vary widely depending on the nature of the industry in which R&D is being conducted. We have written about eligible activities in another FAQ entry which you can find here.  

With regard to R&D expenditure, what you can claim will differ depending on whether you claim under the SME, ERIS, RDEC or New RDEC schemes (see below).  

The costs relating to eligible or qualifying R&D fall under the six main categories explained below:  

• Staff costs – Salary costs, pension, bonuses, staff training, employer contribution and in some cases travel and reimbursed expenses. 
• Consumable and transformable materials – Materials consumed in the production of prototypes or during trials or transformed to facilitate R&D (utilities fall into this category). 
• Software costs – software that is directly employed in the resolution of R&D uncertainty. 
• Subcontracted R&D – The company can generally claim for 65% of the payments made to unconnected subcontractors and subcontracted work may be further subcontracted to any third party. Under the NEW RDEC Scheme, certain foreign subcontractor costs and EPW costs would no longer be eligible. 
• Externally Provided Workers (EPW) – Staff costs paid to an external agency for staff who are directly and actively engaged and managed in the R&D project. 
• Payments to the subjects of clinical trials – Pharmaceutical companies and research organisations often make payments to volunteers taking part in clinical trials. These are allowable for relief in some circumstances. 

R&D qualifying expenditure falling into the above categories must have been made to support directly contributing R&D activities, or indirectly qualifying activities. The details of what can be claimed and for which scheme is contained in the Corporate Intangibles Research and Development Manual (or CIRD Manual for short).

There are differences between the SME, ERIS and RDEC Schemes for what is considered an eligible cost and what proportion of the costs can be claimed. For example, in most circumstances subcontracted R&D cannot be claimed under the RDEC scheme, however Externally Provided Workers and contributions to research at a qualifying body (a charity, higher education institute, scientific research organisation or health service body) can. There are also different rules for connected parties that need to be considered. After 1st April 2024 some foreign subcontractor and EPW costs will no longer be eligible.

Looking for help?

As things can sometimes get a bit complicated, one of our team of R&D Tax Credits consultants will be happy to explore eligible expenditure in the context of your R&D projects. Please get in touch here to explore what a claim could be worth to your business.