What Costs Qualify for the RDEC Scheme?

Apogee Associates R&D Tax Credits

The Headlines

R&D costs can be broadly broken down into four categories; Staff, Software, Consumables and Third Parties.

Staff time that is spent both directly and indirectly on R&D is typically one of the most significant areas of recovery, and is mainly quantified through salary costs.

Software that is used for R&D, as well as software that indirectly contributes to the R&D activity, can be recovered.

Consumables are anything that is consumed, altered, modified or destroyed within the process of conducting R&D. This can be materials or utilities, like heat, light and power.

Third Parties are people who you pay to do R&D that are not on your payroll; you only get 65% of these cost as qualifying expenditure. . There are more detailed rules regarding third party costs for an RDEC application, which are explained in further detail below.

RDEC - The Detail


  • Direct staff costs – this includes salaries, wages, class 1 NIC and pension fund contributions for members of staff that are directly working to achieve an advance in science or technology and overcoming technical uncertainty. This can be “hands on” R&D work, or supervisory and managerial work related to the R&D project.
  • Indirect staff costs – these are costs related to members of staff that are indirectly contributing to the advance sought, by doing maintenance, clerical, security or administrative work related to the R&D.
  • R&D-related travel expenses – travel costs related to R&D are eligible if they are a necessary cost of the employment for R&D related staff. Simply put, they need to be incurred by the employee and expensed back to the company, rather than paid for on a company card.


  • Direct software – any software that is directly used in qualifying activities can be recovered. This could include software used for coding or used for the modification of existing software platforms.
  • Indirect software – similarly to indirect staffing costs, software that is indirectly used to support qualifying activities can also be recovered. For example, software used by HR staff for routine work related to R&D staff would be included, whereas software used to train the HR staff would not be.


  • Consumable items – materials which are consumed, modified or destroyed in the R&D process. This includes a proportion of water, fuel and power costs.
  • Prototypes – design, construction and testing costs of prototypes are eligible for recovery. The cost of materials used in the prototype can also be eligible, providing the prototype is not sold (or intended to be sold).
  • “First of Class” items – Sometimes, it is not commercially viable to build a prototype of an innovative product due to the high commercial cost. These items are considered “First of Class” items and differ from prototypes in that the intention is for them to be sold from the start of development. Whilst the total build costs (such as costs for materials included in the final product) will not qualify, the R&D related design, construction, testing and material costs of first of class items are eligible to be recovered.

Third parties

  • Contributions to independent research – costs paid to a charity, higher education institute, scientific research organisation, health service body, an individual or partnership of individuals, are eligible to be recovered, providing the costs are for relevant independent R&D.