18TH JANUARY, 2018

What Costs Can You Claim Through R&D Tax Credits?

If your business is 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 our online service 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. 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. 

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over £100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey MA, FISTC, FRSA Senior Technical Consultant
Deborah Chapple ATT Corporate Tax Senior Associate
Lauren Olson MA, MISTC Technical Consultant