CIRD82300 - R&D tax relief: categories of qualifying expenditure: consumable items

FA00/SCH20/PARA6

Revenue expenditure incurred on consumable items directly employed in R&D on or after 1 April 2004 is qualifying expenditure. For expenditure incurred before that date it is necessary to decide whether this was incurred on consumable stores ( CIRD82450). Guidance on whether expenditure is capital or revenue is available at BIM35000 onwards.

The term ‘consumable items’ covers consumable or transformable items ( CIRD82400). This includes water, fuel and power of any kind. Software is not within consumable items as it is not consumed or transformed ( CIRD82500). The same meanings are adopted for the large company scheme by FA02/SCH12/PARA17 (c).

Use other than for direct R&D

Consumable items employed indirectly, for example in the provision of secretarial or administrative services, are not qualifying expenditure.

So, power used by the human resources department for routine work related to the R&D staff would not be included. But the use of stationery or office materials by the R&D team to record the results of the R&D would not be excluded, as this would be a direct part of the R&D.

Further guidance on the indirect aspects of R&D is given in the DTI guidelines (see CIRD81990 for the 2000 guidelines and CIRD81900 for the 2004 guidelines).

Apportionments

Where consumable items are partly employed directly in R&D an appropriate apportionment of the expenditure should be made.

For example if there was one electrical supply to a property, and the electricity used by the R&D was not separately metered, then it would be necessary to arrive at a suitable apportionment into R&D and non R&D use.

In this respect, we would accept that expenditure on heating or lighting the part of the property used for direct R&D was being incurred directly on R&D, even if there were trivial indirect activities also taking place.

How a suitable apportionment is to be achieved in practice is dependent on the particular facts of the R&D, and the premises.

Wherever possible a pragmatic approach should be adopted - for example, a broad-brush apportionment based on floor area or staff numbers may prove most suitable where there is no particularly high power consumption based on the nature of the R&D.

If a company offers a reasonable apportionment basis we do not envisage detailed enquiries being desirable to establish a slightly more accurate alternative.