What Costs Qualify for the SME Scheme?

Apogee Associates R&D Tax Credits

The Headlines

R&D costs can be broadly broken down into three categories; Staff, Stuff and Subcons.

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

Stuff is an imperfect word to describe a category of costs not relating to people’s development time, like materials and software programs; every pound of these costs is a pound of qualifying expenditure.

Subcons are people who you pay to do R&D that are not on your payroll, such as other companies, technical consultants and agency staff; you only get 65% of these cost as qualifying expenditure.

SME - The Detail


  • Direct and indirect staff costs – this includes salaries, wages, class 1 NIC and pension fund contributions.


  • 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 are eligible for recovery providing the prototype is not intended to be sold on. Even if this is the intention, elements of the prototyping may still eligible.
  • Software – any software that is directly employed in qualifying activities can be recovered. Software that is indirectly used to support qualifying activities can also be recovered.
  • Clinical trial volunteer costs – payments made to volunteers taking part in clinical trials.


  • Subcontractors – third party companies or individuals undertaking work contributing to the R&D projects.
  • Externally provided R&D staff – these are staff costs paid to an external agency for individuals directly involved in R&D activities, which are not employees or subcontractors.