Direct R&D staff costs
You can claim for Gross Salaries, Employer NI Contributions and Employer Pension Contributions for your PAYE employees engaged in your R&D project. This covers employees who undertake ‘hands on’ R&D work and the proportion of supervisory and managerial time spent specifically directing such employees in those activities.
Support staff costs, for example administrative or clerical staff, do not qualify, except when they relate to qualifying indirect activities. These can be activities like maintenance, clerical, administrative and security work.
Externally provided R&D staff
You can usually claim up to 65% of the payments made to the staff provider, in a case where your staff costs are paid to an external agency. Here as well, the eligible costs are for staff who are engaged in the R&D project.
SME Scheme: You can generally claim for up to 65% of the payments made to subcontractors. The subcontracted work may be further subcontracted to any third party.
RDEC Scheme: R&D expenditure subcontracted to other persons is generally not allowable unless it is directly undertaken by a charity, higher education institute, scientific research organisation or health service body — or by an individual or a partnership of individuals.
You can claim for the cost of items that are directly employed and consumed in qualifying R&D projects. These include materials and the proportion of water, fuel and power consumed in the R&D process. Costs of materials incorporated in products that are sold are not eligible for relief.
You can claim for the cost of software that is directly employed in the R&D activity. Where software is only partly employed in direct R&D, an appropriate apportionment should be made.
If you are creating a prototype to test the R&D being undertaken, the design, construction and testing costs will normally be qualifying expenses. However, if the prototype is also built with a view to selling the prototype itself (such as the construction of a bespoke machine), this will be considered as a production and outside the R&D scheme.
In that case you need to work out the split between R&D expenditure and production costs. For example, the construction costs and materials consumed would not be qualifying expenses, but design, modelling and testing costs could still qualify.
Clinical trial volunteers
Pharmaceutical companies and research organisations often make payments to volunteers taking part in clinical trials.