Costs: Which R&D Costs Can I Include in my R&D Claim?

When making an R&D claim,  the information will be comprised of what you worked on (your R&D project) and how much you spent doing it (your total qualifying expenditure).

When it comes to claiming for your total qualifying expenditure, there are specific guidelines around what you can claim for. It's important to get these right, as claiming for non-qualifying costs can result in HMRC rejecting costs or even an enquiry.

In this guide, we will walk you through which costs you can claim for in your claim, which information you should provide for these costs, as well as which accounting periods are impacted by HMRC's recent changes to eligible costs.


Which costs can I claim for?

For all claimants, your total qualifying expenditure can be broken down into the following categories:

- Employee costs.

- External worker costs.

- Consumable costs.


When completing the 'Costs' section on the EmpowerRD platform, you will need to add the above costs to the relevant columns in the costs table. You can add your costs by connecting to your Xero account, using our costs template or simply adding your costs manually.


⬇️  Let's take a look at these categories:


Employee Costs

Employee costs refer to those on your payroll who worked on R&D during your claim period. For those with accounting periods until April 2024, you can claim for both UK and overseas employees. However, after April 2024, some new changes have been introduced to overseas worker costs.

When adding your employee costs, you will need to add the following information for each employee:

- Gross Pay: This is the total salary paid before any tax or benefits in kind deductions are made.

- Employer NI: This can be found in your P32 document.

- Pension: This should be for employer's pension contributions only, you cannot claim for employee's pension contributions.

- Reimbursed Expenses: You can claim for employee's reimbursed expenses, providing that these are R&D-related, have been paid for by the individual on their personal debit or credit card, and have been reimbursed to them via their salary.

- Bonuses: You can claim for bonuses if they are R&D-related. For example, you cannot claim for sales-related bonuses, as the work did not contribute to the advance sought in your project.


🚨 It's important that you add the above details correctly, as it will be factored into your total qualifying expenditure and therefore, it will impact your claim benefit.


External Worker Costs

External worker costs refer to the following types of workers:

Externally Provided Workers: These are temporary workers supplied by a third party, such as an staffing agency. They work under your technical guidance, supervision and management, therefore these workers can essentially be viewed as an 'extension' of your existing workforce. They are typically paid via invoice and are not under your payroll or PAYE.

Subcontractors: These workers are often experts in their field and can bring a level of expertise that may not otherwise be available in your existing workforce. Unlike externally provided workers, subcontractors work with a higher level of autonomy, meaning you would have minimal supervision and control over them. They are typically paid directly via invoice for the entirety of their work. If you are claiming for contracted out R&D under the RDEC scheme, you can only claim for subcontractors that are individuals, partnerships, universities, charity or public bodies.


When adding your external worker costs, you will need to confirm the following information for each external worker:


- Work Description: This could be their job title or a brief description of what they worked on. For job titles where the area of R&D work may not be immediately apparent, e.g.: 'Researcher', please add some further details on what they worked on.

- Amount: This should correlate with any invoices.

- UK-based: This is very important, as claimants with accounting periods on or from the 1st of April 2024 will no longer be able to claim for contracted out overseas workers, unless exceptional circumstances apply. You can learn more about this here.

- Invoice Available: You do not need to upload the invoices, but we may need these in the event that HMRC request it.

- Connected Party: This is very important, as connected and unconnected external workers have different caps applied to the amounts you can claim. Connected external workers are usually linked to the company via financial or ownership ties.

💡 It's important to get the above details right, as it may impact your claim benefit. For example, unconnected subcontractor costs are capped at 65% whereas connected subcontractor costs can be claimed for at 100%.


🚨 Please do not add VAT to your external worker costs, as you cannot claim for VAT.


Consumable Costs

Consumable costs refer to materials, chemicals, prototypes or software licences that you used up or 'transformed' during the R&D process. This means that you cannot claim for consumable costs that were left over and/or sold after the R&D process has ended.


Common examples of consumables you can claim for include:

- Utilities: Water, gas and electricity - these could have been used as fuel and power to help you complete your R&D activities. When adding these, you should apportion the costs appropriately; you can either do this in your total figure or you can apportion it in the 'Time Spent on R&D' section.

- Hardware materials: You may have purchased physical materials to complete your R&D. This is highly likely if your field of R&D work is in engineering, manufacturing or construction.

- Research prototypes: You may have purchased materials or other resources to complete a research model in preparation for your final product.

- Software licences: You can claim for software licences that helped you to complete your R&D.  However, you can only claim for cloud data hosting or storage if your accounting period starts on or from the 1st of April 2023. This includes:

• Data storage.
• Hardware facilities.
• Operating systems.
• Software platforms.

When adding costs to the 'Consumable Costs' section, you will need to tell us the supplier's name (e.g.: 'Slack'), the item type and the relevant cost category (e.g.: 'Software'). There are other two categories to choose from, so you will need to select it as either a consumable or a software cost. Finally, you will need to confirm the amount; these types of costs generally need to be apportioned appropriately in the 'Time Spent on R&D' section.


🚨 Please do not include any stationery, postage or VAT costs, as these cannot be claimed for.


Can I include costs that have been capitalised?

Yes, you can claim for intangible assets that have been capitalised in your company accounts for the applicable accounting period.

These costs must be in the same categories as the costs that are in your 'Profit and Loss' statement. In current and ongoing claim periods, the amortisation on these costs will not be tax deductible once you have submitted the claim.

If you're including any capitalised intangible assets in your claim, you will need to answer 'Yes' to the capitalised costs question in the 'Business Questionnaire' section. You will then need to tick the relevant costs as capitalised and/or intangible in the 'Costs' section.


Question not answered?

Contact us via email at claims@empowerrd.com or alternatively, send us a message via live chat.