What costs can UK companies claim through R&D tax credits?

If your business is based in the United Kingdom and involved in the research and development of new or existing products and services, it’s likely that you are eligible to claim R&D tax credits.

Tax credits are issued by HMRC and are a great way for small businesses to receive money back for the ‘head-scratching’ work they are undertaking.

You can also claim R&D tax credits for a number of different costs that your business many incur, meaning it is a broad claim that may allow you to receive significant financial support.

Read on to learn about the different costs you can claim for using R&D tax credits.

If you are a small business hoping to claim money from R&D tax credits an online service[1] makes the whole process much easier.

The cost of staff

Paying people is one of the biggest outgoings that most companies face, and it’s likely that these costs will increase if you are involved in R&D. If you are undertaking a new project that is proving to be challenging, you may decide you need to employ more staff. Luckily you will be able to claim back some of these costs using R&D tax credits[2] . It covers things like salaries, employers NICs, company pension contributions and even reimbursed expenses. You can also claim back agency workers that are involved in the R&D process, however this will be restricted to 65% of the agencies invoice value.

It is not uncommon for an R&D team to consist of many individuals from different parts of the business. Your R&D project team may include the R&D Manager, a Lead Developer, Engineers, Project Co-ordinators, CAD Engineers, Quality Control and Testing specialists, and Cost Accountants, as well as members of the senior management team.

Sub-contractors and freelancers

If you outsource some of the development work or utilise freelancers, then you can include these costs in your R&D tax claim. The sub-contractor can be based anywhere in the world and the freelancer must be actively involved in the project and just not provide professional advice. For unconnected parties the invoice value is restricted to 65%, if the party is connected such as a subsidiary then a special ‘look through test’ has to be performed. If this sounds confusing, the good news is that you could use our online service as this can accommodate connected party transactions.

Materials and consumables

When you are developing a prototype, you will often be using up materials in the process. If these materials have subsequently been consumed and can’t be reused, then you will be able to claim back for them. This can include things like materials, components, prototype tooling, heat, light and power, all of which are either used up in transformed in the R&D process.

Software costs

The latest software is a necessary but also a costly part of R&D. If you are using software in your development activities or using project management software to keep track of your team, you will be able to claim back the cost of software through R&D tax credits.

Payments to Clinical Trial Volunteers

While this is not applicable to a lot of businesses, those that are in the medical or pharmaceutical research industry may need to enlist the help of volunteers, in which case they will need to pay them. Often these figures are substantial, which is why it is good you are able to claim back this money through R&D tax credits.