R&D Tax Credits – What Costs can I Claim For?

R&D tax credits are a fantastic form of corporation tax relief which to date remains largely underclaimed here in Wales. Thankfully, more and more companies are becoming aware of the opportunities available to them and are successfully reclaiming what can often amount to tens of thousands of pounds in relief.

So how do we calculate the amount of money a company can claim back?

The amount of money a company is entitled to depends on several factors, but essentially it is based on the costs the company has incurred in a given accounting period for its development activities.  These costs are often referred to as ‘Qualifying Expenditure’.

So, what do we mean when we say, ‘Qualifying Expenditure’?

Broadly speaking, there are 5 categories of expenditure which may be included in an R&D tax credits claim.  For the most part, these are pretty much the same for SME and large company claims.

Expenditure on employees including gross salaries, employers NIC, employers pension contributions and any reimbursed travel expenses

Expenditure on consumables and materials This includes the cost of raw materials consumed (e.g. in building prototypes or conducting trial production runs).  It can also include some premises costs such as electricity, gas and water used.

Expenditure on externally provided workers This can include agency staff.

Expenditure on subcontracted R&D activities This can include testing services.

Expenditure on R&D related software packages This can include CAD packages.

We should also mention that there is sometimes a 6^th cost category, not seen often as it typically only features in pharmaceutical industry claims, where companies pay clinical trial volunteers to test the efficiency of e.g. a new drug.  This too may be included in an R&D tax credits claim.

So in a given accounting period, we analyse this expenditure and identify that which can be included in a claim, and after applying statutory restrictions etc we calculate the amount of money due.

A caveat is needed here – As with every professional service, circumstances are never black or white, and there are specific rules surrounding each of the above categories that need to be considered at every stage in the claim process.  This is why it is so important to seek the advice of a qualified expert to ensure your claim is prepared correctly and maximised to its full potential.