R&D Tax Credits Qualifying Expenditure is expenditure incurred for the purposes of carrying out R&D, directly contributes to the resolution of technological uncertainty or is a Qualifying Indirect activity, and falls into one of a number of categories.
1. Staff Costs – the gross costs of permanent employees can be included in a claim to the extent that they spend their time on qualifying R&D activities.
2. Externally Provided Workers – These are workers provided by at least one other party (the staff controller) who carry out R&D for the claimant company. 65% of the qualifying part of these costs can be included where the workers are not connected to the claimant company. To get the qualifying part of the costs, these costs must be pro-rata apportioned in respect to the time spent on qualifying R&D activities. Where they are connected, it is the lower of the payment made by the claimant company and the actual underlying costs incurred by the staff controller that can be claimed. Note that self-employed individuals cannot be included in this category.
3. Subcontractors – 65% of the cost of subcontracted R&D can be included where the subcontractor is not connected to the claimant. Where the companies are connected, it is the lower of the payment to the subcontractor and the underlying relevant expenditure of the subcontractor .
4. Consumables – Anything consumed or transformed in the course of performing R&D, including the cost of building prototypes, water and fuel. Note that since 1 April 2015, if a product is subsequently sold, then the cost of any materials included will not be eligible, even if they are experimental or first-in-class.
5. Software – this is software directly required for the R&D or qualifying indirect activities.