Which R&D Claim Qualifying Costs Do Companies Routinely Leave Out?
26 Sept 2026 · Unlocked · 16 min read
An r&d tax credit claim is worth a fixed percentage of the costs that go into it, so every qualifying cost left out of the claim is relief the company does not receive. R&D claim qualifying costs go missing because the accounts sort spend by supplier and ledger code, not by project: the staff time, the agency invoices and the cloud bills were all paid, but nobody tied them to the R&D work before the figure was fixed.
HMRC's provisional figures show 40,325 R&D claims for 2024 to 2025, down 17% on the previous year, while total relief claimed rose 5% to £8.2 billion (HMRC, "Research and Development Tax Credits Statistics: September 2026", published 29 September 2026). The failures behind the falling count are covered in the guide to why R&D tax relief claims get rejected. A claim that does go in is still sized by its cost side: what a company can claim R&D on, how to calculate the R&D claim for each category, and how much R&D tax credit each missed cost takes with it.
What Can I Claim R&D On? The Six Qualifying Categories
Qualifying costs are revenue spend on the qualifying R&D project, and GOV.UK states that "you must have already paid the cost to be able to claim the tax relief" (GOV.UK, "Check what Research and Development (R&D) costs you can claim", published 31 October 2024). The same page sorts R&D claim qualifying costs into six categories, which together answer what a company can claim R&D on. Nothing outside them can be claimed:
- Staff employed by the company: the share of salaries, wages, bonuses, pension contributions, employer's National Insurance and training that matches time spent on the project. Found in payroll.
- Externally provided workers: staff supplied by an employment agency or staff provider. Found in the purchase ledger, often under agency fees.
- Payments to contractors: R&D the company decided on and planned, then paid another business or person to carry out.
- Software: licence fees for software used in the R&D, or a reasonable share where it is partly used.
- Data licences and cloud computing: for accounting periods beginning on or after 1 April 2023.
- Consumable items: the proportion used up in the R&D.
Payments to clinical trial volunteers are a narrow additional category. Every cost also has to fall inside the project, which GOV.UK says runs from when work begins to resolve the scientific or technological uncertainty to when that uncertainty is resolved or the work stops. Setting those points is covered in the guide to where an R&D project starts and stops.
Consumables and Materials: The Used-Up Rule
Consumable items are things used up in the R&D project, and a company can claim the proportion used up in the R&D, including fuel, materials, chemicals or ingredients, power and water (GOV.UK costs guidance, 31 October 2024). Power and water usually arrive on a site-wide utility bill, so the R&D share has to be worked out before it can go into the claim.
Ownership is the second restriction. GOV.UK states that "you cannot claim the costs if you sell or transfer ownership of the consumable items used up in the R&D", so a prototype that survives testing and is sold to a customer takes its materials out of the claim. How materials, prototypes, utilities and scrap are measured is covered in the guide to consumables and materials in an R&D claim.
A cost outside all six categories cannot be claimed at all. GOV.UK gives capital expenditure, the cost of land, patents and trademarks, and rent, rates or leasing costs as examples, and the guide to costs you cannot put in an R&D claim lists the rest.
Staff Time: The R&D Claim Costs First Claims Undercount
Staff employed by the company are claimed for the time they spend working on the R&D project (GOV.UK costs guidance, 31 October 2024). The test is time, so a developer, engineer or scientist who splits the week between the project and routine work is claimed for the project share, and a director on the payroll is treated the same way for the time spent on the technical work.
Zest Tax, an R&D tax adviser, says in its own guide to qualifying costs that staff time "is regularly underclaimed because companies don't properly capture what their people work on" (page checked 19 October 2026). HMRC publishes no figures on which costs claims miss, so this is the firm's own observation. Payroll records what each person was paid and says nothing about what they worked on, which leaves the project share to be rebuilt from other records.
Support staff are the second gap. GOV.UK lets a company claim "a proportion of the staff cost for anyone who carries out work to support the project", which HMRC calls qualifying indirect activities, and gives human resources recruiting a specific person for the project and specialist cleaning staff as examples. Where that person has other duties, only the time spent on the supporting task counts, and GOV.UK states that the company cannot claim 100% of the staff cost.
Two staff costs never qualify: redundancy payments, and clerical or maintenance work that would have been done anyway, such as managing payroll (GOV.UK costs guidance, 31 October 2024).
Apportioning Salary, Pension and Employer NIC
Which staff costs qualify and how to apportion them is covered in full in its own guide. GOV.UK lists the claimable elements as salaries, wages, bonuses, pension fund contributions, secondary Class 1 National Insurance contributions paid by the company, and staff training costs (GOV.UK costs guidance, 31 October 2024).
The staff part of how to calculate an R&D claim is a time percentage applied to those elements. GOV.UK's own example is a member of staff who spends 90% of their time on R&D activities, which lets the company claim 90% of their salary. The same share applies to the bonus, pension and employer's NIC, since each is part of the same person's cost.
Take a developer whose salary, bonus, pension contributions and employer's NIC come to £62,500 for the year, and who spent 80% of their time on the qualifying project:
- Total employment cost: £62,500
- Share of time on the R&D project: 80%
- Qualifying staff cost: £62,500 × 80% = £50,000
The percentage has to come from something the company can show HMRC, such as timesheets, project logs or ticket histories.
Subcontracted R&D and Agency Staff: The 65% Left Out
R&D claim subcontractors and agency staff are usually coded in the purchase ledger as "consultancy" or "agency fees" rather than to a project. For accounting periods beginning on or after 1 April 2024, a company can claim the cost of contracting out its own R&D if it can show it made the decision to carry out the R&D and planned it, and only that company can claim (GOV.UK costs guidance, 31 October 2024).
How much of the payment counts depends on whether the contractor is connected to the company:
| Who did the work | What the company can claim |
|---|---|
| Contractor not connected to the company | 65% of the contractor payment |
| Contractor connected to the company | The lower of 100% of the payment and 100% of the contractor's relevant costs |
| Staff provider not connected to the company | 65% of the staff provision payments |
| Staff provider connected to the company | The lower of 100% of the payment and 100% of the provider's costs of supplying the workers |
Source: GOV.UK, "Check what Research and Development (R&D) costs you can claim", published 31 October 2024. GOV.UK points to HMRC manual CIRD82150 for the connected persons test.
The 65% rule cuts both ways: a company that leaves an unconnected contractor out of the claim loses 65% of the payment from its qualifying expenditure, and a company that claims the full invoice overstates it by the other 35%. Contracted costs where the R&D takes place abroad cannot be claimed, with some exceptions.
Each of these has its own guide: externally provided workers in an R&D claim for agency and contractor labour, paying a connected company for R&D for group subcontractors, and overseas R&D expenditure for work done outside the UK.
Software, Cloud and Data: The Costs Companies Miss Entirely
In an R&D claim for software development, the tools can drop out even when the developers' time is counted: Zest Tax says in the same guide that cloud and software costs are "often missed entirely" (page checked 19 October 2026). These costs sit on company cards and monthly subscriptions, and one cloud bill can cover both the live product and the development environment.
GOV.UK allows licence fees for software used for R&D and "a reasonable share" of the cost of software partly used in R&D activities (GOV.UK costs guidance, 31 October 2024). The full rules for software, cloud and data costs in an R&D claim have their own guide. GOV.UK's test for the share is:
- software used almost exclusively for the R&D work: "a high percentage would be reasonable";
- software used mostly for other tasks outside the R&D: "a much lower percentage would be reasonable".
For accounting periods beginning on or after 1 April 2023, qualifying expenditure also includes data licence costs and cloud computing costs (GOV.UK costs guidance, 31 October 2024). A data licence is a licence to access and use a collection of digital data. Cloud computing includes data storage, hardware facilities, operating systems and software platforms.
GOV.UK states that a company can claim most data and cloud computing costs spent on R&D, but not those for qualifying indirect activities. Cloud spend that supports the R&D project's administration or finance work therefore stays out, even though staff time on the same supporting tasks can go in.
A company should list every subscription and cloud account on the card statements and supplier ledger for the period, mark which ones the project team used, and set a share for each with a reason it can explain.
Worked Example: What a Missed Cost Is Worth
This R&D claim example shows how much R&D tax credit two missed costs are worth, for a company claiming under the merged scheme for an accounting period beginning on or after 1 April 2024, where the expenditure credit is 20% of qualifying expenditure (GOV.UK, "Work out your Research and Development tax relief", published 31 October 2024). Its draft claim leaves out two costs: the developer's £50,000 apportioned staff cost from the section above, and a £20,000 payment to an unconnected subcontractor.
| Missed cost | Qualifying expenditure | Credit at 20% |
|---|---|---|
| Apportioned staff cost, £50,000 | £50,000 | £10,000 |
| Unconnected subcontractor payment, £20,000 | £20,000 × 65% = £13,000 | £13,000 × 20% = £2,600 |
| Total | £63,000 | £12,600 |
Line by line:
- Staff: £50,000 × 20% = £10,000 of credit left behind.
- Subcontractor: £20,000 × 65% = £13,000 of qualifying expenditure, and £13,000 × 20% = £2,600 of credit left behind.
- Together: £10,000 + £2,600 = £12,600 of credit the company did not claim.
The credit is liable to Corporation Tax because it is classed as trading income (GOV.UK merged scheme and ERIS guidance, last updated 8 January 2026), so the cash benefit after tax is lower than £12,600.
Under-claiming and over-claiming are the two ways a claim loses value. The other direction is covered in Signs Your R&D Adviser Is Overclaiming, and What It Costs You.
How Much Can a First Claim Be Worth?
How much R&D tax credit a company can claim depends on its qualifying costs and on the scheme for the accounting period. GOV.UK asks the company to work out the relief so it can include the details on the additional information form before it claims on the Company Tax Return, which is how R&D claims work in practice (GOV.UK, "Work out your Research and Development tax relief", published 31 October 2024).
For accounting periods beginning on or after 1 April 2024 there are two routes (GOV.UK merged scheme and ERIS guidance, last updated 8 January 2026):
| Scheme | Who uses it | What it gives |
|---|---|---|
| Merged scheme | Trading companies chargeable to Corporation Tax with qualifying R&D | A taxable expenditure credit of 20% of qualifying expenditure |
| Enhanced R&D intensive support (ERIS) | Loss-making SMEs whose relevant R&D expenditure is at least 30% of total expenditure | An extra 86% deduction (186% in total) and a payable credit of 14.5% of the loss surrendered |
Under either scheme, the credit the company receives for the period cannot exceed the PAYE cap unless it is exempt from the cap. A company eligible for ERIS can still choose the merged scheme, but it cannot claim under both for the same costs.
On the £63,000 of missed qualifying expenditure from the worked example, an ERIS company would see:
- Enhanced expenditure: £63,000 × 186% = £117,180
- Most it could surrender for a credit: the lower of £117,180 and its trading loss after the extra deduction
- Payable credit if the full £117,180 is surrendered: £117,180 × 14.5% = £16,991.10
Accounting periods beginning before 1 April 2024 use the older SME and RDEC schemes, so a claim priced at those rules for a later period is priced wrong. HMRC's statistics show the average claim value rose 27% in 2024 to 2025, driven by claims over £2m (HMRC, September 2026), so the average says little about a first claim, whose value depends on its own costs.
Frequently Asked Questions
Next Step: Size the Claim with the R&D Estimator
The R&D claim estimator works as an R&D tax claim calculator on the costs entered into it, so a low estimate does not show the company cannot claim more, a higher one does not show the costs qualify, and neither is an eligibility test. Once all the R&D claim qualifying costs in the six categories have been traced through the accounts, enter the apportioned staff, contractor, software, cloud and consumable costs into the R&D claim estimator to size the claim before the return is filed.
