What is qualifying expenditure for R&D tax credits?
You may hear the term ‘qualifying expenditure’ but what does it mean?
Qualifying expenditure is the key to unlocking tax relief for R&D. Available to SME and RDEC schemes - it generally consists of internal staff costs and external consultants or contractors. This expenditure covers a range of items essential to the research and development process, including consumable items such as materials and components, as well as software licences used in R&D activities.
Let's delve deeper into what qualifies as qualifying expenditure and how it can benefit your climate tech business when claiming R&D tax credits.
Consumable Items
Consumable items are essential components of R&D activities, and you can claim for relevant consumable items used up during the process. This includes power, water, fuel, and materials necessary for the research and development work. However, it's important to note that you cannot claim the costs if you sell or transfer ownership of the consumable items used in R&D.
Subcontractors & Externally Provided Workers (EPWs)
Subcontractors are third parties directly contracted to undertake activities as part of the overall R&D project. Similarly, externally provided worker costs refer to workers supplied by a staff provider, such as an employment agency. For both subcontractors and EPWs, you can claim a percentage of the relevant payments depending on the connection between your company and third parties involved.
Data Licence, Cloud Computing & Software
Qualifying expenditure can also include costs related to data licences, cloud computing, and software. This encompasses expenses associated with accessing and using digital data, as well as hardware facilities, operating systems, data storage, and software platforms. It's worth noting that these costs are eligible for tax relief for accounting periods beginning on or after 1 April 2023.
Staff Costs
For staff directly involved in the R&D project, you can claim various costs such as salaries, wages, bonuses, employer pension fund contributions, and certain national insurance contributions. Additionally, in specific circumstances, you may also claim for qualifying indirect activities related to R&D, such as human resources used for recruitment or specialist cleaning staff. However, there are certain staff costs that you cannot claim for, including redundancy payments and dividend payments. For more information, speak to our team of R&D specialists at Sustainable Ventures.
In conclusion, understanding qualifying expenditure is crucial for maximising your eligibility for R&D tax credits. By identifying and claiming eligible expenses, you can leverage tax relief to support your research and development endeavours, ultimately driving innovation and growth within your sustainable business.
If you have any questions about claiming R&D tax credits or need assistance navigating the process, don't hesitate to reach out to an R&D tax credits specialist who can provide tailored guidance for your specific circumstances.
