💡 Keep in mind - HMRC’s standards for R&D Tax Credits are tightening
When making an R&D Tax Credit claim, it's vital to distinguish your qualifying costs from your non-qualifying costs.
HMRC expect your financial report to be water-tight, detailing a comprehensive breakdown of relevant costs – emphasis on relevant.
The inclusion of ineligible spending will trigger alarm bells for inspectors, and you may face an R & D claim enquiry, or have your r & d tax credit claim thrown out completely.
In short, R&D Tax Credits allow innovative companies to reclaim revenue expenditure, otherwise known as day-to-day operational costs.
The rule of thumb is that capital expenditure – or money spent on fixed assets such as land and buildings – does not qualify for the scheme.
So, how do you know what costs fall into which category? And in turn, what areas of spending qualify for R&D Tax Relief?
💡 It pays to have an experienced R&D Tax Specialist making your case
There’s no substitute for using an experienced service provider that specialises in completing and submitting R&D Tax Credits, such as Claim Capital.
Our team of R&D Tax Specialists at Claim Capital have over 20 years of combined technical experience in delivering successful and maximised R&D claims to UK companies.
We perform in-depth analyses of our client's technical and financial information to ensure their R & D claim returns every penny possible, to reinvest into the growth of their business.
As an authorised HMRC agent, Claim Capital takes care of your R&D Tax Credit claim from start to finish – all for a cost-effective fixed fee.
For a totally free claim consultation (with no obligation to proceed), schedule a meeting with one of our R&D Tax Credit Specialists.
But for now, this article will give you a closer look at which costs are claimable under the R&D Tax Credit scheme, with real-world examples.
💡 Which costs can be reclaimed under R&D Tax Relief?
💸 Staffing costs
For SMEs and large companies this category can include:
✅ Gross salaries (including wages, overtime pay and cash bonuses);
✅ Employer NI contributions;
✅ Employer pension contributions; and
✅ Certain reimbursed business expenses.
Benefits such as private medical cover, or company vehicles, are specifically excluded from the category of staff costs.
It’s also important to note that you can’t include director dividends in an R&D Tax Credit claim. This can impact your claim size significantly if your directors are directly involved in the R&D activity to some extent.
Some employees or directors may devote the entirety of their time to R&D activities within a company.
But more frequently, the team will be partly engaged in R&D activities.
In this case, you’ll have to determine the appropriate apportionment of their total staffing costs to include in your research and development tax credit claim.
💸 Subcontracted Research & Development
Qualifying subcontractor costs vary depending on which Research & Development Tax Credit scheme you’re filing under.
If you’re making an RDEC R & D claim - which cater to larger businesses - money spent on subcontractors does not typically qualify for R&D Tax Relief. However, there are some exceptions.
Through the RDEC initiative, companies can only claim for subcontracted R&D expenditure if the subcontractor is:
✅ An individual,
✅ A partnership, where all partners are individuals, or
✅ A qualifying body (including charities, universities, and scientific research organisations).
If your R&D Tax Credit claim falls under the more conventional SME scheme, you can claim back expenditure on subcontractors that were involved in the projects reported in your R&D Tax Claim.
If you are making an SME claim, you can include 65% of payments made to unconnected parties.
💸 Externally Provided Workers (EPWs)
During the R&D process, you may call upon externally provided workers (or EPWs). EPWs are required to operate through a staff provider, as opposed to being directly contracted by your business.
Examples of EPWs include contractors, freelance workers, and agency staff.
EPW-related R&D expenditure is claimable under R&D Tax Relief if the EPW has worked under the supervision, direction, or control of you as the claiming company.
For unconnected EPWs, payments that can be included in your R&D tax credit claim are restricted to 65% – and special rules apply for connected EPWs.
Consumables are defined as any materials that were consumed or transformed within your research and development project, from water, and fabrics to fuel, and power.
Here, the rules are simple – consumables that help you to build a new product, process, or service, or improve existing offerings, qualify as claimable expenditure for R&D Tax Relief.
So, if you're testing fabrics and materials during the prototype phase, or trialling fuel types, you can reclaim up to 33% of the money you spend on these consumables.
A defining trait of R&D is the overcoming of technological or scientific uncertainty. Trying to do this often involves experimentation with a variety of consumables. Once your work to resolve the technological or scientific uncertainty is finished, any additional costs for consumables cannot be included in your research and development tax credit claim.
These additional costs include materials for cosmetic fine-tuning, or marketing, for example.
It’s important to only include the relevant consumables that play a necessary role in building your R&D project.
Just as is the case with tangible consumables, costs spent on computer software license agreements involved in R&D activities can be included in your R & D claim.
💸 Payments to the subjects of clinical trials
Though these costs will only be incurred from Medtech R&D, paying the subjects of clinical trials can amount to a great deal of expenditure. And there’s certainly no skipping over this process!
Wherever companies pay those who are involved in R&D clinical trials, testing the efficiency of innovative pharmaceutical treatments, this expenditure can qualify for both SME and RDEC R&D Tax Relief.
As we mentioned before, the only way to be sure that the entirety of your eligible expenditure is captured within your R & D tax credit claim is to use an experienced R&D Tax Credit service provider.
At Claim Capital, our end-to-end R&D Tax Credit service leaves no stone unturned. We make sure all of your qualifying costs are captured and you receive the maximum tax benefit.
Plus, our expertise means that no irrelevant cost will be submitted to HMRC, allowing us to uphold our 100% success rate.
You don’t have to sit down with your accounts and try and fit them into these eligible categories.
That’s what we’re here for.
After receiving your financial and technical information, we aim to get your r & d claim completed and submitted to HMRC within 3-5 working days.
Enquire into our trusted R&D Tax Credit service, today.