What costs can be included in an R&D tax credits claim?

Employee wages:
Salaries, wages, bonuses, employer National Insurance Contributions (NIC) and pension contributions of employees directly involved in qualifying R&D activities are generally eligible types of expenditure.

This typically includes:

• Researchers
• Engineers
• Technical staff

These types of employees if the project must have been actively resolving technical uncertainty. Time spent on non-R&D activities should be apportioned on a reasonable basis.

Materials and supplies:
Costs for materials, components and consumables used up or transformed during R&D projects can also be included. This covers items such as:

• Raw materials
• Prototypes
• Test components

These must be directly used in the development process and consumed or transformed as part of the qualifying R&D activity.

Software:
Expenditure on software licences or subscriptions that was apportioned for qualifying R&D activity may be eligible. The software must support the R&D work directly. Costs relating to routine business operations or administrative use should be excluded or apportioned.

Subcontractor costs:
Payments to subcontractors carrying out qualifying R&D activity on behalf of the company may be included, subject to scheme-specific rules. Only a proportion of the cost is eligible in some cases, and the company must retain oversight of the R&D activity.

Externally Provided Workers (EPWs):
Where workers are provided by a third party, a portion of their costs may qualify if they are directly engaged in the R&D activity. Eligibility is subject to specific legislative conditions and depends on the nature of the arrangements in place.

Utilities and consumable items:

Certain consumable items used directly in qualifying R&D activity may be eligible.

This can cover:

• Power
• Water
• Fuel

The expenditure must be directly attributable to the R&D activity. General business overheads and depreciation of assets are not qualifying expenditure.

Prototyping costs:
Expenditure on designing, building and testing prototypes or pilot models can qualify where these are created to resolve technical uncertainty. Costs relating to final production versions intended for sale are not typically eligible.

Testing and certification costs:
Costs incurred for testing, validation and certification activities may form part of a qualifying R&D project where they are necessary to advance the development work. This applies where the activities form part of resolving scientific or technological uncertainty rather than routine quality assurance.

Clinical trial costs:
For companies undertaking medical R&D activity, certain expenditure associated with clinical trials may qualify.

This includes activities required to test safety or effectiveness as part of the development process.

External technical specialists:

Payments to external specialists providing technical input into qualifying R&D activity may qualify where the work falls within the relevant subcontractor or externally provided worker rules. The work must directly relate to resolving scientific or technological uncertainty.

A cautious approach should be taken when identifying qualifying expenditure. R&D qualifying costs relating to routine commercial operations, administration, sales activities and other non-R&D functions should be excluded from the claim.