What are the qualifying cost categories?

You can only make a claim for certain types of expenses under the UK’s Research and Development (R&D) schemes. The general principle is that where an expense meets the definition of one of the following cost categories, is incurred in relation to relevant R&D, and is allowable as a deduction in computing the profit of the trade to which the R&D relates, then it will likely qualify for relief.

• Staffing Costs
• Externally Provided Workers
• Subcontracted R&D
• Consumables
• Software
• Payments to the subjects of clinical trials

There are some subtle but important differences between the Small and Medium Enterprise (SME) and Research and Development Expenditure Credit (RDEC) schemes when it comes to qualifying cost categories. In particular, the RDEC scheme will only allow subcontracted R&D to be claimed under some very specific (and somewhat rare) circumstances.

Capital expenditure generally will generally not qualify under RDEC or the SME scheme, with the exception of expenses that are not of a capital nature that have been capitalised as an intangible trade asset. There is, however, an R&D Capital Allowances scheme for R&D related capital expenditure.

For accounting periods starting on or after 1 April 2023, cloud computing (including storage) and data licence costs will be new types of expenses that can be considered for relief.