Staffing costs: why, who and how much?

Research and Development (R&D) activities are those that collectively serve to resolve scientific or technological uncertainties associated with achieving an advance. Therefore, R&D requires the activity of “people” by its very nature. As such, staffing costs are one of the commonly claimed expenses under the R&D schemes.

Staffing costs refer to the payroll-related expenses associated with employees or directors directly engaged in R&D projects (including qualifying indirect activities known as ‘QIAs’). This includes not only their gross salaries but also employer National Insurance contributions, employer pension contributions, and even certain employer reimbursed expenses.

Most employees or directors will have multifaceted roles, which may include both R&D activities and other non-R&D responsibilities. As such, an appropriate apportionment will need to be made to distinguish between qualifying and non-qualifying activities. Careful record-keeping and documentation are essential in this process to demonstrate how employees’ and directors’ activities directly relate to qualifying R&D projects.

Even for qualifying R&D staffing costs, it is generally advisable to distinguish between direct activities and QIAs. A QIA can generally be described as an activity that indirectly supports the R&D to occur without directly contributing to the resolution of scientific or technological uncertainty.

It should also be noted that where a director of a company is also a shareholder and dividends were issued to that director, the dividend income cannot be included for relief.