Which costs go into an R&D claim.

Salaries, wages, bonuses, employer pension contributions, employer Class 1 National Insurance and staff training, for the time employees spend directly on R&D. The cost is apportioned by time: if someone spends 40% of their working time on qualifying R&D, 40% of the qualifying cost is claimed. The method and the supporting evidence for each percentage matter as much as the figure.

Where a director is paid through payroll and spends time on qualifying R&D, the corresponding share of the pay and related employer costs can be included. The claim should show what the director actually did, such as hands-on technical work, rather than management or general running of the company. Only the time on the R&D itself counts.

No. The qualifying staff costs are salaries, wages, bonuses, pension contributions, employer National Insurance and training. Dividends are a distribution of profit and sit outside that list. A founder paid mostly in dividends therefore brings little qualifying staff cost to the claim, which also reduces the PAYE and NIC base for the cap.

Use the best contemporary evidence available, such as timesheets, task trackers, project plans or calendars. If none exist, a reasoned reconstruction can work, but it should be documented and checked with the individual and their manager. Round numbers applied to everyone are a warning sign to HMRC, so the method should reflect what each person actually did.

An externally provided worker, or EPW, is someone supplied to you by an agency or other provider. For an unconnected provider, 65% of the payment is claimable. For a connected provider, the claim is the lower of the payment and the provider's relevant costs. From April 2024, EPW costs are also subject to the overseas restriction.

For R&D contracted out to an unconnected party, the rules allow 65% of the payment. The same 65% applies to payments for unconnected externally provided workers. The percentage is a fixed feature of the legislation rather than a view on the invoice. Because it reduces the base, the cost line should be recorded at the full payment and the 65% applied in the calculation.

The rule for connected persons is different. The claim is the lower of the amount paid and the provider's relevant costs, rather than 65% of the payment. A connected-party arrangement can also affect other tests, such as the 15% limit used in the PAYE cap exemption. Connections should be mapped at the start of the claim.

Items used up in the R&D: materials, fuel, chemicals, power and water. The cost must relate to the qualifying project, and general office supplies or items kept for continued use are not consumables. The usual evidence is invoices and project records showing what was used in the R&D and in what quantity.

Yes. For accounting periods beginning on or after 1 April 2023, most data licence and cloud computing costs used in the R&D qualify. They do not qualify when they relate to qualifying indirect activities rather than the R&D itself. Keep invoices that show the service and the project it supported, and separate any costs that served non-R&D purposes.

Yes, a reasonable proportion of the licence fee can be claimed where software is used partly for R&D. The share should reflect actual use and be documented. Software licence costs for tools used for R&D, such as simulation or modelling software, are the clearest example. Software bought for general business use is unlikely to attract much of a share.

No. Capital expenditure is not claimable under R&D tax relief. Other allowances may relieve it: research and development allowances can give a 100% deduction for capital expenditure on R&D by a trader. Our related reliefs section explains how the two fit together, and we help split spending between the claim and the allowances.

Yes. HMRC's guidance requires qualifying costs to have been paid before the claim is made. Unpaid costs at the date of the claim cannot be included, even if they relate to the accounting period. For EPWs and subcontractors, this makes the timing of settling invoices something to plan for before the return is filed.

Yes. For periods beginning on or after 1 April 2024 there is no restriction on subsidised costs under the merged scheme or ERIS. For earlier periods, grants and state aid could limit which scheme applied or how much could be claimed, and those rules still matter for late claims and enquiries. We check the period first.

Rent, rates and leasing costs are not claimable, and neither are land, redundancy costs, production and distribution costs, patents and trademarks, or independent R&D contributions. Power and water used up in the R&D itself can be claimed as consumables. General overheads must be left out of the claim, so strip them from cost totals.

Yes. Payments to volunteers in clinical trials are a qualifying cost. They sit alongside staff, EPWs, subcontractors, consumables, software and data and cloud costs. Other costs of the trial, such as work done by a contract research organisation, follow the contracted-out R&D rules, including the 65% rule and the overseas restriction.

Staff training is listed in HMRC's guidance as part of qualifying staff costs, for the time and cost relating to the employees doing R&D. As with any staff cost, it needs a link to qualifying R&D, so general training for the whole business does not belong in the claim. Keep records of what the training was for.