Qualifying R&D staffing costs are built from three payroll elements: gross salary, employer secondary Class 1 National Insurance contributions and employer pension contributions, as HMRC’s guidance on R&D costs sets out. Where staff split their time between R&D and other work, only the proportion of these costs tied to R&D hours counts, and that figure needs to reconcile back to your payroll ledger and feed into the Additional Information Form.
TL;DR:
- Include bonuses only when they relate to R&D duties; exclude benefits in kind, redundancy payments, employee pension contributions, and employee National Insurance contributions.
- Apply the share of actual working time spent on eligible R&D to combined payroll costs, then reconcile each person’s figure to the payroll ledger.
- Payments to an unconnected agency normally qualify at 65% before time apportionment; workers supplied from overseas generally face restrictions, subject to narrow exceptions.
- Since 2024, companies must submit an Additional Information Form before or alongside the Corporation Tax return, listing staffing costs by expenditure category.
Table of Contents
- What counts as R&D staffing costs
- How to calculate and apportion staff costs for a claim
- Externally provided workers and contracted staff
- Record-keeping, evidence and the Additional Information Form
- Worked example: a developer and a project manager
- How Price & Accountants helps with staff-cost claims
- Author perspective: get ahead of this before claim season
- How we can support your R&D staffing-cost calculation
- FAQ
- Sources
What counts as R&D staffing costs
Under the merged scheme, qualifying in-house staffing costs cover gross salaries, wages, bonuses, employer pension contributions and secondary Class 1 National Insurance contributions paid for staff who are directly and actively engaged in relevant research and development. This applies to employees and directors on your payroll, not to externally provided workers, who sit under a separate set of rules.
The qualifying elements are:
- Gross salary, wages and overtime paid for time spent on R&D work.
- Bonuses, where they relate to R&D duties rather than general performance.
- Employer secondary Class 1 National Insurance contributions.
- Employer pension contributions made on behalf of the employee.
Several common payroll items fall outside the definition. Benefits in kind, redundancy payments, and employee (as opposed to employer) pension and NIC contributions do not qualify. General administrative or clerical work also sits outside the relief unless it meets the narrow test for qualifying indirect activities. HMRC’s internal manual treats the question of direct and active engagement as one of fact, based on what the person actually did, not their job title.
How to calculate and apportion staff costs for a claim
The calculation follows a consistent sequence, whether you run it in a spreadsheet or through your cloud accounting software.
- Extract gross pay for each relevant employee from the payroll system for the claim period.
- Add employer secondary Class 1 National Insurance and employer pension contributions for the same individuals and period.
- Choose an apportionment method, usually the proportion of working time spent directly on R&D activities.
- Apply that proportion to the combined payroll figure to arrive at the qualifying cost per person.
- Reconcile the total back to the payroll ledger so the figure can be traced line by line.
Where staff split their time, HMRC accepts the proportion matching actual time spent on eligible projects, not an estimate based on job description. The strongest evidence hierarchy runs from timesheets, through formal project allocation records, down to contemporaneous project notes where timesheets were not kept. HMRC’s own guidance on record keeping accepts that smaller projects may rely on ordinary business records supplemented with contemporaneous notes, rather than demanding a full time-tracking system from day one.
Joiners, leavers and bonus payments need particular care. Pro-rate costs for anyone who started or left mid-period, align payroll periods with your accounting period where they do not match exactly, and only include bonus amounts that relate to R&D duties rather than a blanket annual award.
Pro Tip: Keep a single tab in your payroll reconciliation workbook that lists every person included in the claim, their gross pay, employer NIC, employer pension and the time proportion applied, so the whole calculation is auditable from one sheet.
Externally provided workers and contracted staff
Externally provided workers (EPWs) are staff supplied to you by a third party, such as an agency, rather than people on your own payroll, and they are tested under separate rules from in-house employees.
- An EPW must work under your direction, through a staff provider, broadly as if employed by you.
- Where the provider is connected to your company, qualifying expenditure is based on relevant costs in the provider’s accounts.
- Where the provider is unconnected, the payment normally qualifies at 65% of the amount paid; a £10,000 payment to an unconnected agency gives £6,500 of qualifying expenditure before time apportionment.
- Overseas-supplied EPWs are generally restricted under the post-2024 rules, which limit relief for staff and subcontractor costs outside the UK except in narrow circumstances.
Misclassifying an EPW as an employee, or vice versa, is a common trigger for HMRC enquiries, so it is worth settling the category early, as HMRC’s distinctions guidance makes clear. For contractor arrangements specifically, our guide to R&D subcontractor costs sets out the treatment in more detail.
Record-keeping, evidence and the Additional Information Form
HMRC expects a clear paper trail linking the claimed figure to payroll and to the work actually done.
- Timesheets or project allocation records showing hours spent on R&D.
- Contemporaneous notes where formal timesheets were not kept.
- A reconciliation showing how the claimed figure ties back to the payroll ledger.
- A short method memo recording the apportionment approach used for each person.
Since the 2024 R&D Information Requirements Regulations took effect, every claim must be accompanied by a mandatory Additional Information Form, submitted before or alongside the Corporation Tax return, breaking down qualifying expenditure by category including staffing costs.
Pro Tip: Draft your method memo at the same time as the calculation, not months later when preparing the AIF; it is far easier to explain your reasoning while the project detail is still fresh.
Worked example: a developer and a project manager
Say a developer earns £60,000 gross a year, with £7,000 employer pension and £6,200 employer secondary Class 1 NIC, and spends 70% of their time on a qualifying R&D project.
- Combine gross pay, pension and NIC: £60,000 + £7,000 + £6,200 = £73,200.
- Apply the 70% time apportionment: £73,200 × 0.7 = £51,240 qualifying cost.
- Repeat for the project manager, say £45,000 gross, £5,000 pension and £4,600 NIC, at 40% time on the project: £54,600 × 0.4 = £21,840.
- Add the two figures for a combined qualifying staffing cost of £73,080, reconciled against the payroll run for the claim period and entered against the staffing cost line in the AIF.
Where either person received an R&D-related bonus mid-year, add it to gross pay before the NIC and pension step, and adjust the time proportion if their working pattern changed partway through the period.
How Price & Accountants helps with staff-cost claims
We prepare payroll reconciliations, apportionment method memos and AIF submissions for R&D claims as part of our regular accounting services.
- We reconcile claimed staffing costs line by line against the payroll ledger before submitting claims.
- We build apportionment memos that document the time-based method used for staff costing.
- We complete the Additional Information Form and provide support through subsequent HMRC queries.
- We use cloud accounting tools to keep staffing-cost data traceable throughout the year, not just at claim time.
Author perspective: get ahead of this before claim season
The companies that sail through an HMRC check are the ones who kept records as they went, not the ones who reconstructed them afterwards. Run a contemporaneous-record check on current projects now, reconcile the last 12 months of payroll against any R&D time logged, and do an AIF dry run while there is still time to fill gaps.
— Rahamut
How we can support your R&D staffing-cost calculation
If you would rather hand the payroll reconciliation, apportionment memo and AIF submission to someone who does this for tech start-ups every week, that is exactly what our R&D Tax Credit service covers.
We also handle the payroll and pension administration that feeds the claim, so the figures are clean before they ever reach the AIF. Our Core Services, Blue Plan and Black Plan are built for companies at different stages of growth, from early-stage founders to businesses running larger R&D teams. Get in touch through our pricing page to arrange a review of your current staffing-cost calculation.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
FAQ
Can bonuses be included in R&D staffing costs?
Yes, bonuses count towards qualifying staffing costs where they relate to R&D duties, alongside gross salary, employer pension contributions and secondary Class 1 National Insurance, as HMRC’s guidance confirms. A bonus unrelated to R&D work, such as a general company-wide award, should be excluded or apportioned on the same time basis as the rest of the person’s pay.
How do you apportion costs for staff who are only partly on R&D?
You apply the proportion of their working time spent directly on qualifying R&D activities to their combined gross pay, employer NIC and employer pension figure. HMRC accepts time-based apportionment supported by timesheets, project records or contemporaneous notes.
What is the 65% rule for externally provided workers?
Where an unconnected staff provider supplies workers for R&D, the payment to that provider normally qualifies at 65% of the amount paid, before any further time apportionment. This rule, set out in HMRC’s guidance, does not apply to employees on your own payroll, who are assessed on actual payroll costs instead.
Is the Additional Information Form compulsory for staff-cost claims?
Yes, every R&D claim made since the 2024 Information Requirements Regulations took effect must be supported by an Additional Information Form submitted alongside the Corporation Tax return. The form requires a breakdown of qualifying expenditure by category, including staffing costs, before HMRC will process the claim.