Understanding Eligible R&D Costs for Tax Credits

Research and Development (R&D) tax credits can be claimed on revenue expenditures, which are operational costs incurred on a daily basis. However, capital expenditures, such as money spent on fixed assets such as land and structures, are typically not claimable as R&D expenditures.

Eligible Research and Development Costs include:

Staffing Expenses

Staffing costs for small and large businesses can include:

However, benefits in kind and director dividends are not included in the category of personnel expenditures.

Contract-based R&D

The Research and Development Expenditure Credit (RDEC) scheme and the SME R&D tax credit scheme permit the inclusion of different subcontractor costs. Small- and medium-sized enterprises can include subcontractor costs in their R&D tax credit claims. For the objectives of the claim, payments linked to R&D activities for "unconnected" subcontractors are limited to 65%.

Externally Provided Employees

Externally provided employees (EPWs) are individuals supplied to a business by a staffing agency. EPWs must perform R&D activities under the supervision, direction, or control of the claiming company. Payments that can be included in an R&D tax credit claim for 'unconnected' EPWs are limited to 65%.

Consumable Products

Consumable items include water, fuel, and electricity, which are consumed or transformed during the R&D process. These materials are eligible for inclusion in the claim.


It is permissible to include revenue expenditures on computer software used for R&D. As with other categories, software used partially for R&D can be included with a reasonable allocation.

Clinical Trial Participants in the Pharmaceutical Sector

In the pharmaceutical industry, companies can include the cost of paying clinical trial participants as part of a research and development endeavor.

Professional Advice for Your Claims

Navigating the qualifying costs in an R&D tax credit claim can be difficult. CAPS-IT’s team of chartered tax advisers, sector specialists, attorneys, ex-HMRC inspectors, and a former rocket scientist helps businesses navigate these complexities. They collaborate with businesses to ensure all costs are accounted for and the maximum claim value is obtained. If you are uncertain as to whether your expenses qualify, CAPS-IT is here to assist you. They use an ever-evolving process to maintain conformity with HMRC's preferred standards for receiving R&D tax credit claims.