Who and what research and development costs qualify for R&D tax credits in the UK
A question that we often receive is ‘What costs qualify for R&D tax credits?’, and “Who can claim R&D tax credits?”. In this blog, we will outline these expenses and requirements, and provide industry-specific examples for each cost category.
Who can claim R&D tax credits?
Any business carrying out HMRC’s definition of research and development might be eligible for claiming R&D tax credits (formerly known as relief). R&D tax credits are industry agnostic, and we work with clients across a range of industries at RCK. That said, the project must be aiming to achieve an advance in the fields of science or technology as well as meet HMRCs other criteria. Here are some of the industries that we currently service:
If you have any questions regarding eligibility, please contact one of our advisors for a free audit, or read our guide to R&D tax credits for more information on how HMRC defines R&D for tax purposes.
R&D tax credit eligible expenses: what costs can be claimed?
The costs associated with qualifying R&D activity may be eligible for R&D tax relief. Below is a summary of some of the key types of expenditure that businesses can claim under the UK R&D tax relief scheme. Please note that these examples are illustrative only, and eligible costs will vary depending on the specific nature of the projects and activities undertaken.
Staffing costs
Eligible companies can claim a portion of employees’ gross salaries, National Insurance, pension contributions and travel expenses that relate directly to the time that the person spends working directly on the R&D.
Consumables
Expenses related to the resources used throughout your business's R&D process. This includes consumables such as materials and utilities, like raw materials, prototypes, and testing equipment. These materials must have been consumed, transformed or destroyed in the course of undertaking the R&D activities and cannot have commercial value in order to be qualified.
Software licenses and data costs
Encompassing any expenditure on software which is directly employed for R&D purposes. This includes both the purchase cost and any costs related to using the software.
Sub-contracting or outsourcing
If a business outsources part of their R&D to external contractors, the company can claim a proportion of the cost in their R&D tax credit claim.
Externally Provided Workers (EPWs)
EPWs are agency workers. There are strict definitions around what constitutes EPWs when claiming R&D tax credits.
Industry-specific examples of R&D tax relief
Costs eligible for R&D tax credits in the software development industry
- Staffing: normal staffing costs are eligible. This is often the highest component of a claim within the software industry.
- Consumables: normal consumable costs apply as such utility bills.
- Software: software licenses are usually an element of software claims. For accounting periods beginning on or after 1st April 2023, data licenses and cloud computing costs can also be eligible as qualifying for relief. This holds an opportunity to increase the claim amount moving forwards as many companies tend to rely on cloud-based servers for their data storage infrastructure.
- Outsourcing/EPWs: Software companies usually rely heavily on both internal and external workers. Externally provided workers are often from a consultancy and hired for additional development work. Subcontractors hired for specialised development roles such as penetration testing.
Read more about R&D tax in the software industry.
Costs eligible for R&D tax relief within the manufacturing industry
- Staffing: normal staffing costs are eligible.
- Consumables: items including metal sheets, metal tubes, inert gases (for welding), welding rods (tungsten for example), water to operate CNC machines, cutting heads, plastics, ceramics, and composite materials.
- Software: CAD/CAM software (i.e.Solidworks, CATIA, NX, Fusion 365), finite Element Analysis (FEA), software(such as Abaqus, LS DYNA), and simulation/modelling (ANSYS)
- Outsourcing/EPWs: within manufacturing umbrella companies (for example, would typically be used to find skilled labour in the engineering industry).
Read our case study on how we’ve helped businesses in the manufacturing industry claim R&D tax credits.
Costs eligible for R&D tax relief within the architectural industry
- Staffing: normal staffing costs are eligible. Within architecture, this is the main cost category.
- Consumables: normal consumable costs apply as such utility bills.
- Software: Autocad, Archicad, Revit (BIM), Rhino (grasshopper), Vectorworks, and Adobe suite.
- Outsourcing/EPWs: this is largely dependent on the type of architectural contractual agreement. For example, if it is a Design and Build project or not. Other costs within this category are lighting, structural, façade, mechanical and electrical engineers.
Read our case study on how we’ve helped businesses in the architectural industry claim R&D tax credits.
Costs eligible for R&D tax credits in the construction industry
- Staffing: normal staffing costs are eligible. Within construction, this often encompasses staff time which has been dedicated to designing, testing, and implementing new solutions.
- Consumables: any aggregate materials used in the construction process such as concrete, steelwork, timber, and insulation material. Naturally, within this category, there are many associated consumable costs but to qualify these materials must have been consumed, destroyed, or transformed in the R&D process.
- Software: structural modelling software such as CAD, building modelling software such as IM REVIT.
- Outsourcing/EPWs: costs often include sub-contractors who have been brought into the business to carry out packages of work associated with the R&D, examples of which would be piling specialists and structural engineers. Agency or third-party workers who have been onboarded to the project to assist with R&D activities may also be included.
Read more about R&D tax relief in the construction industry.
Costs eligible for R&D tax relief within the engineering industry
- Staffing: normal staffing costs are eligible.
- Consumables: printed Circuit Boards (PCBs/Microprocessors), electrical components (diodes, capacitors, resistors),excess waste (wires, solder, chemicals, metal layering), and tools (drills, saws,etc).
- Software: CAD and Altium Designer.
- Outsourcing/EPWs: normal outsourcing costs are eligible.
Read our case study on how we’ve helped businesses in the engineering industry claim R&D tax credits.
Costs eligible for R&D tax relief within the agricultural industry
- Staffing: normal staffing costs are eligible.
- Consumables: feed, fertilisers, sundries, seeds, animal purchases and medicines.
- Software: statistical analysis software or trial management software could be claimed. Standard farm management software can’t typically be claimed for.
- Outsourcing/EPWs: silage contractors, consultants or genetic specialists.
Read our case study on how we’ve helped businesses in the agricultural industry claim R&D tax credits.
Costs eligible for R&D tax credits within the chemicals and storage industry
- Staffing: for chemicals and storage, this could include time spent developing new formulations, improving manufacturing processes, enhancing storage systems, or testing product stability and safety.
- Consumables: chemicals, compounds, gases, laboratory samples, prototype storage materials, and utilities such as electricity or water used during testing and experimentation.
- Software: process simulation software, chemical analysis tools, warehouse automation platforms, inventory tracking systems, and environmental monitoring software.
- Outsourcing/EPWs: specialist laboratories, chemical consultants, process engineers, storage system specialists, and subcontractors.
Read our case study on how we’ve helped businesses in the chemicals and storage industry claim R&D tax credits.
Costs eligible for R&D tax credits within the defence industry
- Staffing: staff time dedicated to developing new technologies, improving defence systems, enhancing communications infrastructure, testing advanced materials, or designing solutions to meet strict operational and security requirements.
- Consumables: prototype materials, electronic components, specialist metals, testing equipment, fuels, and utilities used during experimentation and testing activities.
- Software: simulation software, systems modelling tools, cybersecurity platforms, CAD software, data analysis tools, and testing environments used to develop or assess defence technologies.
- Outsourcing/EPWs: specialist engineering contractors, software developers, testing facilities, cybersecurity consultants.
Read our case study on how we’ve helped businesses in the defence industry claim R&D tax credits. Likewise, our advice for navigating R&D tax credit claims in the defence industry.
The importance of working with a specialist advisor
Navigating the complexities of R&D tax relief and understanding HMRC’s claims process can be intricate, therefore we recommend seeking professional advice from an R&D tax firm to ensure compliance and to ensure that all qualifying activity is accounted for in your claim.
Here at RCK Partners, we have experienced consultants qualified up to PHD level within multiple R&D rich industries. Contact us today for a free evaluation of your R&D tax status.
R&D tax relief eligibility FAQs
What industries can claim R&D tax credits?
Any company attempting to achieve an advance in science or technology may be eligible to claim. Common qualifying industries include:
- Construction
- Manufacturing
- Software and technology
- Engineering
- Chemicals
- Life sciences
- Defence
- food and drink
- Agriculture
- Architecture
- Logistics
- Renewable energy
The above list is by no means exhaustive and is just a selection of some industries where R&D takes place. If you’re unsure if your business qualifies, contact us today for a free evaluation of your R&D tax status.
How can an R&D tax credit specialist help when identifying qualifying expenditure?
An R&D tax credit specialist can help businesses accurately identify which costs and activities qualify under HMRC guidelines, ensuring claims are fully compliant. This includes reviewing projects in detail, assessing technical uncertainties, identifying eligible staffing, consumables, software, and subcontractor costs, and ensuring expenditure is correctly apportioned. Specialists can also assist with preparing the technical narrative and supporting documentation required to strengthen a claim and reduce the risk of HMRC enquiries.
Are employee costs eligible for R&D tax relief?
Yes, employee costs are one of the most common types of expenditure included within an R&D tax credit claim. Businesses can typically claim for the proportion of employees’ salaries, employer’s National Insurance contributions, pension contributions, bonuses, and reimbursed travel expenses that relate directly to qualifying R&D activities. This applies to staff involved in designing, developing, testing, supervising, or supporting R&D projects.
