Money spent on 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.
At ForrestBrown, as well as helping innovative businesses claim R&D tax credits, our highly-qualified tax team also provides strategic advice to help you maximise future claims.