Consumable Costs in R&D Tax Credit Claims: Your FI Group Guide

R&D tax credits are a valuable incentive for companies investing in innovation. One of the key components are Consumable Costs in R&D Tax Credit Claims. Understanding what consumable costs can be included in R&D tax credit claims is crucial for maximising your benefit. This guide provides a comprehensive overview of eligible consumable costs, ensuring you make the most of your R&D tax credits.

What Are Consumable Costs?

Consumable costs refer to the expenditure incurred for items consumed or transformed in the R&D process. These items must be used in the R&D process and no longer usable in their original form. Examples include:

• Lab Chemicals: Chemicals used in experiments that are consumed or transformed into an unusable product.
• Electronic Components: Components used in prototypes that are no longer available for other purposes.
• Water, Fuel, and Power: Utilities consumed during the R&D process.

Calculating R&D Apportionments

Similar to other cost categories, expenditure incurred for consumables must be apportioned relative to the extent it is used for qualifying R&D activities. Here are the methodologies for apportioning costs:

1. Consumables: If the consumed or transformed item is used solely to carry out qualifying R&D activities, 100% of the relevant cost can be claimed. However, if the cost is only partly employed in R&D activities, apportionment of the expenditure should be made.
2. Utilities: This refers to office or building utilities costs (water, fuel, or power). These costs are common in most companies as they need to power their offices and buildings. The most widely used methodology to apportion these costs is by dividing the R&D staff costs of direct staff (competent professionals) by the total company staff costs to get an R&D percentage.

Information Needed for Claims: Consumable Costs in R&D Tax Credit Claims

To calculate consumable costs for R&D tax credit claims, the following financial reports are typically required:

• Detailed Profit and Loss (P&L) Statement: A summary of expenditure incurred for the period.
• General Ledger: Details of the expenditure incurred, including invoice date, account, description, and cost.

Detailed Breakdown of Eligible Consumable Costs

To further understand what consumable costs can be included in R&D tax credit claims, let’s delve into more specific details:

1. Lab Chemicals: These are chemicals used in the R&D process, such as reagents and solvents. Once used, they are transformed and no longer usable in their original form.
2. Electronic Components: Components used in the development of prototypes or experimental setups. Once integrated into a prototype, they are no longer available for other purposes.
3. Water: Water used in various R&D processes, such as cooling systems or chemical reactions.
4. Fuel: Fuel used to power equipment or machinery involved in R&D activities.
5. Power: Electricity consumed by R&D facilities, including lighting, heating, and powering equipment.

Apportioning Costs for Mixed Use

In many cases, consumables and utilities may be used for both R&D and non-R&D activities. Accurately apportioning these costs is crucial. Here are some strategies:

• R&D Staff Percentage: Determine the percentage of R&D staff costs relative to total staff costs and apply this to the consumable cost.
• Usage Tracking: Use detailed records of consumable usage to allocate costs based on actual usage in R&D projects.

To understand more about the HMRC guidelines for what is included in consumable costs, click the button below.

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