Want to know more?

Staffing costs and qualifying expenditure for R&D tax relief

Author: Tom Mason

One of the most common questions around R&D tax relief that accountancy firms face is whether all costs relating to an R&D project qualify for tax relief.

Where this gets particularly complex is in relation to staffing costs, which often make up a significant amount of spending on a commercial R&D project, given the expertise and intensity of work involved.

Before preparing a claim, your clients should be aware of when staff costs qualify for R&D tax relief and when they don’t to avoid submitting a non-compliant claim.

Do staffing costs qualify

On the face of it, staffing costs do qualify for R&D tax relief, including when they are for staff classed as:

  • Direct staff – You can typically claim relief for the cost of salaries, National Insurance and pension contributions for staff ‘directly and actively’ engaged in R&D activities.
  • Externally provided R&D staff – You can claim up to 100 per cent of the cost for workers provided by an external agency if it is connected to your company, or 65 per cent if they are not.
  • Volunteers – Making payments to clinic trial volunteers typically qualify under the current scheme.

Indirect costs may also be eligible, such as specialist cleaning staff and the costs associated with the recruitment of a specific person or skillset.

However, direct staffing costs do not always entirely qualify for R&D relief, which is where timesheets and other records will come in handy.

A question of relevance

Let’s go back to that phrase ‘directly and actively’.

This means that, in order to claim R&D tax relief on the cost of an employee’s salary, that employee must genuinely contribute to the project and its advancement.

For certain employees, such as dedicated project managers, this will equate to claiming on 100 per cent of their salary and other remuneration costs.

However, many staff will work across a number of projects, only spending part of their time working on the project which is subject to the claim.

For example, if a scientific researcher is employed full-time on a salary of £70,000, but only spends 40 per cent of their time dedicated to a particular R&D project, then the claim for that project would include £28,000 as qualifying expenditure, in addition to National Insurance, pension contributions or bonuses.

The issue of staffing costs as relevant R&D expenditure is a complex one, and one that your clients are likely to raise questions over.

We can help you to enhance your R&D tax advisory services and ensure that even the most complex claims are compliant and as successful as possible.

To further support your clients in preparing and submitting an R&D tax claim, please contact a member of our consultancy team today.