Wondering which costs qualify for R&D relief and which don't? Look no further!
Having established that the project(s) the company has undertaken meet the qualifying criteria for R&D tax relief, as they sought or achieved an advance in science and/or technology, the next stage is to carefully quantify those costs that qualify for relief.
The most common qualifying costs fall into the following categories:
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Staff Costs
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Wages or salaries
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Employers National Insurance Contributions
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Pension fund contributions
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Subcontractor costs
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A company can claim 65% of these costs incurred
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Staff providers
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Like subcontractors a company can claim 65% of the cost of relevant payments made to an external agency who provide staff for a specific project
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Items consumed
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Materials
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Utilities
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Other qualifying costs that can be considered when preparing an R&D tax relief claim include:
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Clinical trial volunteers
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Specifically, for the pharmaceutical industry
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Software
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Licence fees for software purchased for R&D
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Within all of these areas, careful analysis must be made to establish the proportion of the costs that directly relate to the qualifying activity, and only the qualifying element may be claimed.
HMRC will take a realistic view on the proportions claimed, the key being the company can justify the proportions they have included within the claim.
Whilst HMRC are keen to encourage companies to make the appropriate claims for R&D tax relief there are specific costs that may be incurred by a company that will not qualify for R&D relief, these include:
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Dividends
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where a company director involved in a qualifying project receives a mixed income of salary and dividends, only the salary element will qualify for relief
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Capital Expenditure
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Whilst this does not qualify for R&D tax relief, when a capital item, including commercial property where a qualifying activity is undertaken, this will be relieved at 100% of cost in the year incurred through R&D allowances - part of the Capital Allowances regime
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The cost of patents and trademarks
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(This doesn’t affect deductions through the normal accounting process)
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Rent or rates at company premises where a qualifying activity is undertaken
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The production & distribution of goods or services