What costs can you claim under the Merged Scheme?

If your company carries out qualifying research and development activity, you may be able to include certain costs associated with those activities in your R&D claim under the R&D Merged Scheme. The amount that can be claimed depends on how the expenditure relates to the qualifying R&D activities and whether it falls within one of HMRC’s qualifying cost categories.

Qualifying expenditure can include:

• Staffing costs: Certain employment costs for employees involved in qualifying R&D activities. Where an employee spends only part of their time on qualifying R&D, an appropriate proportion of their eligible staffing costs may be included.
• Software: The cost of software used for qualifying R&D. Where software is also used for other business activities, the cost should be apportioned appropriately.
• Consumable items: Materials that are consumed or transformed during the R&D process. This can include water, fuel and power used in genuine R&D activities.
• Data licences and cloud computing: Certain data licence and cloud computing costs used in activities that directly contribute to resolving scientific or technological uncertainty.
• Externally provided workers: Certain payments for externally provided workers involved in qualifying R&D may be eligible, subject to the relevant EPW rules and restrictions.
• Contractor payments: Certain payments for qualifying R&D contracted out to another party may be eligible. This is subject to the Merged Scheme’s contracted-out R&D rules, including the rules determining which company is entitled to claim and restrictions relating to overseas R&D.
• Clinical trial participants: Certain payments made to subjects participating in qualifying clinical trials may also be included.

Not every cost associated with an R&D project will qualify. A company needs to identify which expenditure relates to the qualifying R&D activities and apply the relevant rules to each cost category. Where expenditure relates partly to qualifying R&D and partly to other activities, an appropriate apportionment may be required.

The Merged Scheme also includes a payment condition. Expenditure must have been paid before it can be included in a claim.