Can staffing costs be included in R&D tax relief claims?

As R&D tax consultants, we work to educate innovative businesses and accountants on overlooked qualifying expenditure that can be listed in R&D tax relief claims.

One of the least understood aspects of R&D tax relief claims relates to staffing costs, with some aspects being overlooked or wrongly included.

Ahead of increasing wages in April, now is the time to understand how staffing costs are treated in R&D tax relief claims.

What staffing costs can be included in R&D tax relief claims?

As might be expected, the wages of employees engaged in R&D can be included in an R&D tax relief claim.

This includes the competent professional who should be overseeing the project, as well as the wages of any staff who work on the project itself.

What many businesses may not realise is that employer National Insurance Contributions (NICs) are also eligible for inclusion in an R&D tax relief claim, as are any contributions towards an employee’s pension made by an employer.

Bonuses can be included, but Benefits in Kind are not eligible, so be careful when ascribing costs to ensure that nothing ineligible gets pulled into calculations.

If an employee has to travel for R&D or incurs other expenses that get reimbursed, these can be covered by R&D tax relief claims, provided they were not purchased through a company credit card.

 When are staffing costs ineligible?

Unless a business dedicates its entire workday to R&D, it is unlikely that all of an employee’s time will be spent on R&D projects.

When employees split their time between routine work and R&D, it is necessary to divide the time spent accurately.

This can be done retroactively and HMRC do generally accept best estimates about the percentage of time spent on qualifying projects.

Where an innovative business spends more time than expected on R&D, it might be challenging to retroactively claim the full amount of employee wages, even if they are accurate.

To avoid this issue, businesses should try to keep stronger records that better document the length of time each employee spends working on R&D.

This is useful where multiple R&D projects are undertaken, as the time spent on each project can be correctly determined for each employee.

In the event that the R&D tax relief claim becomes subject to an enquiry, having robust evidence can help to address the concerns of HMRC and allow the claim to be accepted.

Do staffing costs that support R&D qualify?

Where staff do not actively partake in R&D work but do work to support a project, their wages can be included in qualifying indirect expenditure.

Examples of roles that would be eligible for consideration would be the HR team that works to populate the R&D team with the staff that they need.

However, this would not amount to much of an expenditure, given that this task would likely not take up too much of that employee’s time.

More helpfully, security staff who work to protect R&D facilities can be considered as part of the qualifying indirect expenditure.

This is also limited to the extent that they are involved in protecting R&D work and would not cover routine patrols of other, non-R&D related areas.

As there is often some confusion around direct and indirect qualifying expenses for staffing costs, we are on hand to help clarify which expenses are eligible.

We work to support accountants and innovative businesses to make the most of R&D tax relief claims so that they can continue pushing for more advances in the future.

To find out more about how R&D tax relief claims can pave the way for innovation, speak to our team today.

Adam Bointon

Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.