Which Costs Qualify as R & D?

The majority of R&D related costs are in fact claimable and usually fit within one of the four main categories; employee costs, staff providers, subcontractors and consumables. Within each one of these categories you will often have to apportion the cost that was spent on R & D projects. Any other expenditure, not related to R & D cannot be used as part of your R & D tax claim.

Employee Costs:

These costs relate to wages, including the employees national insurance contributions, pensions and any other bonuses. In most cases, these will need to be apportioned. I.e. if an employee spends 75% of their time carrying out R & D related work then only 75% of their gross salary qualifies as R & D expenditure.

Staff Providers:

These are similar to employee costs except the worker is not an employee of your company, but is provided to you by another. Again, the expenditure will need to be apportioned. On top of this, only 65% of the R & D expenditure can be claimed.


These are similar to staff providers however no expenditure should be apportioned, it should either be the whole amount or nothing at all. I.e. a subcontractor is hired to carry out work for the R & D project and thus 100% of the cost is attributed to R & D, although you can only claim for 65% of this cost. The work carried out by the subcontractor need not be R & D itself, it could simply be a process that is required during the R & D project. Not all elements of an R & D project are innovative and uncertain, just the overall goal.

The rules around subcontractors are not quite as clear cut as employee costs as it can depend on where the risk associated with R & D is placed. If the risk is placed with the subcontractor then they themselves may be able to claim for R & D, therefore preventing you from doing the same.


These include physical materials which are consumed during the R & D process, not things like telecommunications costs.

Other consumables include software licenses and utilities, but again not telecommunication or data costs. Utilities that come under R & D include power, water and fuel.

Again, many of these consumables will need to be apportioned in the appropriate way. For example, heating and electricity costs in an office will need to be apportioned in the following way. If you have 10 staff members and 3 of them spend 50% of their time on R & D, then you should apportion 15% (3/10 * 50%) of the heating and electricity bills to R & D.

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