Can directors' dividends be included in R&D tax credit claims?

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.

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.