Qualifying expenditure for R&D tax relief

Produced by Tolley
Qualifying expenditure for R&D tax relief

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Qualifying expenditure for R&D tax relief
  • Qualifying and expenditure for R&D tax relief
  • Qualifying conditions for R&D tax relief
  • Qualifying types of expenditure for R&D tax relief
  • Staff costs
  • Staff furloughed during the coronavirus pandemic
  • Coronavirus statutory sick pay rebate scheme
  • Software
  • Consumable or transformable items
  • Relevant payments to subjects in clinical trials
  • More...

Research & development (R&D) tax relief is only available for expenditure which meets certain conditions and that falls within certain types of qualifying expenditure. The conditions and types of expenditure are similar for both SME R&D relief and large company R&D relief with some exceptions which are detailed below.

On 21 July 2020, the Government launched a consultation document inviting views on whether to expand the scope of qualifying expenditure to include data and cloud computing costs to better reflect current R&D practices. The consultation closed on 13 October 2020 and a summary of responses is set to be published.

Qualifying and expenditure for R&D tax relief

Qualifying conditions for R&D tax relief

Certain conditions have to be met in relation to the expenditure, it must be:

  1. revenue not capital in nature, although capital allowance may be available, see the Business premises renovation allowances guidance note

  2. related to a trade carried on or to be carried on by the company, the relief is a corporation tax relief and so is not available to unincorporated businesses

  3. allowable as a deduction in calculating the profits of the trade for the purposes of corporation tax

Qualifying types of expenditure for R&D tax relief

Not all expenditure which meets the qualifying conditions is available for R&D tax relief, the expenditure must alsofall within certain qualifying categories which are detailed below:

  1. staff costs

  2. software

  3. consumable or transformable items

  4. relevant payments to the subjects of clinical trials

  5. subcontracted out R&D costs (but for large companies this is restricted ― see below)

  6. cost of R&D work subcontracted to the company (this is restricted for both SMEs and large companies, see below)

  7. externally provided workers

  8. for large company R&D relief only, contributions to independent research

Further detail on these expenditure types is set out below.

Relief under the SME R&D scheme is not available where the expenditure is:

  1. incurred in the carrying on of activities which are contracted out to the company by any person

  2. subsidised expenditure

  3. capped

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