Directors’ dividends are not classed as qualifying expenditure for the purposes of research and development (R&D) tax credits. Therefore, you cannot include these in your claim.
From a personal taxation perspective, it is generally more efficient for directors to receive remuneration via dividends, rather than as a salary.
However, where directors are significantly involved in R&D activity, their dividends could have a substantial effect on the value of an R&D tax credit claim. This is because salary and employer pension contributions are qualifying expenditure for R&D tax credits, but dividends are not.
In addition, dividends are not subject to PAYE or NIC, which could further impact the total amount of credit your company can claim in the light of the PAYE/NIC cap.
Staff costs that can be included in an R&D tax credit claim
The staff costs that can be included in an R&D tax credit claim include:
- Salaries
- Employer’s National Insurance contributions
- Employer pension contributions, and
- Some reimbursed business expenses.