Salary costs are normally the largest part of an R&D Claim. This blog post will help explain how much of your salary costs your company can claim.
Total Cost
The first thing you need to do is calculate the total salary costs for all your employees in the claim period. The good news is that you can include not just the salaries that your employees received in their bank accounts when you paid them, but also the other costs that your company will have paid on behalf of your employees such as:
- Income tax
- Employees and Employers National Insurance Contribution
- Employees and Employers Pension Contribution
- Bonuses
- Taxable benefits that are included in a P11D
You should be able to determine this from your payroll software. If you use Xero payroll, we here at Claimer will automatically be able to extract the figures for you.
Top Tip: You can’t claim dividend costs for an R&D claim. So make sure you consider this when deciding how to pay founders. It may not be cheaper for your business to pay your founders through dividends after all. This might come as a surprise to you, so if you’d like to discuss - get in touch and we can go into more detail.
The proportion of time spent on R&D
The next thing is to work out the proportion of time spent on direct and indirect R&D activities for every staff member. We normally recommend doing this a percentage of their overall time excluding any holidays. You can do this by reviewing records of what you’ve done during the year.
Direct R&D
Direct R&D activities are limited to the time spent resolving technical uncertainty. Although every R&D process is different, we’ve found that companies typically have 4 stages of an R&D project with only 2 stages that qualify.
| Stage | Description | Does it qualify? |
|---|---|---|
| 1: Scoping | Initial activities such as conceptual ideas, market research, having discussions with industry professionals. | No |
| 2: Development | The actual development of a product/service, e.g. coding, undertaking experiments, building physical prototypes. | Yes |
| 3: Testing | Practical or consumer testing, e.g. strength testing, integration testing, resilience testing. Depending on the results of the testing, further development may be needed. | Yes |
| 4: Refinement | Adjustments or further more routine development, e.g. deployment to users and subsequent bugfixing, of for a physical product, mass production. | No |
Indirect R&D
This comes as a happy surprise for many of our clients. You can also claim indirect R&D activities that support R&D activities. This includes:
- Maintenance
- Security
- Administration
- Finance (including paying people, leasing equipment etc.)
- Personnel activities
- Training
- Research (including related data collection) to devise new scientific or technological testing methods, where this research is not R&D in its own right
- Feasibility studies to inform the strategic direction of a specific R&D activity
Qualifying amount
Once you determine the total cost and time spent on R&D. All you need to do is multiply the two together to work out the total qualifying expense. See the example below.
If you have a backend software developer, whose total salary is £50,000 and the time spent on R&D was 95%, the qualifying amount is£50,000 x 95% = £47,500
When using Claimer, capturing this information and working out the amounts is simple. Also, we have further guidance for the proportion of time we’d expect different roles to spend on R&D activities.
Next Steps
If you have any questions, feel free to pop us a message on the live chat (bottom right), or send us an email using [email protected].
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