Staff costs and apportionment
Staff costs are the largest line in most claims and the first one a reviewer tests. This guide shows which pay elements count, who is directly engaged, how to apportion time and how to document the method so the figure reconciles to payroll.
Staff costs are the largest line in most claims and the first one a reviewer tests, because the figure rests on two judgements rather than an invoice: whose pay is in scope, and what share of it went to the work done to resolve the uncertainty. Each judgement has to stand on its own, and the two have to meet in a figure that reconciles to the payroll ledger.
The principle is the same under all seven schemes: start from the people who did the technical work, take the pay elements the scheme recognises, apportion by the time actually spent on the eligible projects, and keep records made at the time that show how the share was measured.
What this guide covers
- Which elements of pay count.
- Who is "directly engaged".
- Apportionment methods and how each reads under review.
- Building the figure and writing the method down.
- Country differences.
Which staff costs count
Every scheme recognises the pay of employees for the time they spend on the eligible work. Beyond base pay the schemes diverge, and in-house claims most often go wrong by applying a percentage to the payroll total without checking what it contains. Settle each element first.
| Pay element | Treatment across the seven schemes | What to check |
|---|---|---|
| Salary or wages | Recognised in every scheme for the apportioned share | Gross pay for the period from the payroll ledger, not from budgets |
| Employer social or payroll contributions | Named in the United Kingdom wording (employer Class 1 National Insurance), the New Zealand wording (employer superannuation contributions) and the Singapore wording (employer CPF contributions). In the United States, wages means the amount subject to income tax withholding | Included only where named, at the same share as the pay |
| Employer pension contributions | Named in the United Kingdom wording | Same share as the related pay |
| Bonuses and allowances | Named in the Singapore wording. Canada excludes bonuses and remuneration based on profits paid to specified employees | The bonus belongs to the claim period and to a person in scope |
| Reimbursed expenses and benefits in kind | The United Kingdom wording treats reimbursed expenses incurred in carrying out the R&D as staffing costs, and benefits in kind as not | The linked page for each country |
| Dividends and directors' fees | Dividends are not staffing costs in the United Kingdom wording; Singapore excludes directors' fees | Owner managers paid by dividend or fee are not claimed as salaried |
| Owners, directors and specified employees | Included for time directly engaged in several schemes, with limits in some: Canada limits a specified employee's salary to five times the year's maximum pensionable earnings; the United States uses earned income for owner-employees | Any cap applied before the percentage; specific time evidence for people who also run the business |
Who is directly engaged
The second judgement is the role list: every person whose pay might enter the claim, their role, and its treatment under the scheme. Prepare it before the numbers. It is what a reviewer reads first, and where 100 percent allocations for directors and identical percentages across a department are caught.
Hands-on technical staff
Engineers, developers, scientists and technicians who design experiments, build and test, analyse results and write up what was learned are in scope under every scheme for their share of time. For them the question is how much, not whether.
Technical supervision and support
Several schemes reach the people directly above and beside them, on condition that the supervision or support is direct (see the United States, United Kingdom and Canada rows of the country table). In each, general management of the company and administrative or clerical work fall outside. A team lead who plans the experiments is in scope for that time; a director who approves the budget is not.
Everyone else
Finance, human resources, sales and administration are excluded unless the person also did technical work, in which case the technical share is claimed with evidence. Record the exclusion in the role list so a reviewer can see the decision.
Apportionment methods and how each reads under review
Several tax authorities' guidance expects timesheets or another reasonable method supported by records, and tests the method in review. The methods run from strongest to weakest. Mixed approaches are normal: timesheets for the core team, a documented estimate corroborated by other records for the few people around it.
| Method | What it needs | How it reads under review | Typical failure |
|---|---|---|---|
| Timesheets by project and task, kept at the time | Hours against project codes at least monthly, manager approved, with codes that separate eligible from routine work | Strongest: a record made at the time that ties to the ledger and to the technical narrative | Codes too coarse; entries completed at year end; no approval trail |
| Periodic sampling | Representative weeks or sprints recorded in full and extrapolated | Acceptable where the sample is documented and representative and the extrapolation is shown | Unrepresentative period; no record of why it was chosen |
| Reconstruction from project artefacts | Sprint boards, lab notebooks, commit history, calendars and test logs tied to named people and dates | Credible where the artefacts were made during the work and show who did what, for how long | Artefacts show the project existed but not who worked on it |
| Role-based estimate | A percentage per role agreed with managers during the year, corroborated by other records | Weakest alone; workable for a small team where other records support it | Round numbers, 100 percent for everyone, prepared after the year |
Whatever the method, the reviewer asks three questions: who did the work and in what role; what share of their time went to it and how that was measured; and what cost the share was applied to. The figure is reduced where any one has no answer. Consistency from year to year is itself evidence; an unexplained change in method or percentages invites a question.
One threshold rule should not be generalised: the United States "substantially all" rule in the country table. No other scheme in this guide has it; elsewhere a person at 85 percent is apportioned at 85 percent.
Building the figure and writing the method down
Work person by person, not in totals:
- Take gross pay for the claim period from the payroll ledger.
- Remove the elements the scheme excludes and add the employer contributions it names.
- Apply any cap the scheme sets for particular people.
- Multiply by that person's apportioned share.
- Sum, and reconcile the starting figures back to the payroll ledger and the accounts in one step.
Then write the method memo at the time and keep it with the claim file: the scope (people and period); the role list and the treatment of each group; the method for each group and why; the data sources; how gaps, joiners and leavers were handled; who approved the allocations; the reconciliation to payroll; and a change log against the previous year. Two pages written at the time outweigh a long explanation written after the questions arrive.
Illustrative example
Illustrative example. Meridian Instruments Ltd, a hypothetical company, has ten technical staff with gross pay of 900,000 for the year. Six engineers' timesheets show 60 percent of hours on the two eligible projects: 60 percent of 600,000, or 360,000. Two team leads keep no timesheets; their project plans, design reviews and meeting records support 50 percent of their 160,000, or 80,000. One technician is allocated 40 percent of 50,000, or 20,000, on a role-based estimate corroborated by work orders for test rigs. The managing director, at 90,000 and paid partly by dividend, is excluded and the memo says so. Apportioned pay is 460,000. In the United Kingdom, employer Class 1 National Insurance and pension contributions for the same people at the same shares, say 40,000, are added, giving 500,000; the merged scheme gives a 20% expenditure credit on qualifying expenditure, taxable, so a gross credit of 100,000 before the tax on it (United Kingdom: eligible expenditure). Elsewhere the cost base is built from that country's own definition and the benefit is calculated at that country's rate.
Country differences
The linked page sets out the staff cost definition and the records expected in full.
| Country | Staff costs and apportionment | Detail |
|---|---|---|
| United States | Qualified services means engaging in qualified research or in the direct supervision or direct support of research activities that constitute qualified research. If substantially all, meaning 80 percent or more, of an employee's services are qualified services, all of the wages are treated as qualified wages. The Audit Techniques Guide directs examiners to test how time allocations were made and what records support them. | Eligible expenditure: United States |
| United Kingdom | Staffing costs comprise earnings, employer Class 1 National Insurance contributions and employer pension contributions for directors and employees directly and actively engaged in R&D, apportioned where only partly so engaged. Managerial staff qualify to the extent of time spent directly and actively engaged, for example planning and supervising the technical work; general management of the company does not. | Eligible expenditure: United Kingdom |
| Ireland | Staff costs are apportioned according to the proportion of time spent on qualifying R&D activities, supported by records such as timesheets; time spent on general management, administration and non-R&D supervision is not qualifying expenditure. | Eligible expenditure: Ireland |
| Canada | Salary or wages of employees directly engaged in SR&ED qualify for the portion of time so engaged; bonuses and remuneration based on profits paid to specified employees are excluded, and a specified employee's salary is limited to five times the year's maximum pensionable earnings. Directly engaged means hands-on involvement, including performing experiments and analysis, directly supervising the work and technical documentation of the work, but not general management, administrative or clerical functions. | Eligible expenditure: Canada |
| Australia | Salary expenditure must be apportioned on a reasonable basis between R&D and non-R&D activities, and the ATO expects contemporaneous records such as timesheets to support the apportionment. | Eligible expenditure: Australia |
| New Zealand | Eligible expenditure includes salary or wages and other employee remuneration, including employer superannuation contributions, to the extent the employee performs R&D activities. Inland Revenue expects employee costs to be apportioned using timesheets or another reasonable and consistent method supported by records. | Eligible expenditure: New Zealand |
| Singapore | Staff costs for the enhanced deduction comprise salaries, bonuses, allowances and employer CPF contributions of employees directly engaged in the R&D, excluding directors' fees, apportioned where the employee is not wholly engaged. IRAS expects staff costs to be supported by records of the time spent on R&D, such as timesheets or project allocation records. | Eligible expenditure: Singapore |
Related pages
- Module 3: Staff time apportionment
- Module 2: Cost capture
- Contemporaneous documentation: what reviewers actually look for
- Canada: proxy vs traditional method
Educational material, not advice. Eligibility and treatment depend on the scheme and the facts.
Sources
- Treasury Regulation 1.41-2, Qualified research expensesElectronic Code of Federal Regulations (US Government Publishing Office)
- Corporate Intangibles Research and Development Manual (CIRD83000 to CIRD84200, qualifying expenditure)GOV.UK (HM Revenue and Customs)
- Tax and Duty Manual Part 29-02-03, Research and Development Corporation Tax CreditOffice of the Revenue Commissioners
- T4088 Guide to Form T661Canada Revenue Agency
- Research and development tax incentive: expenditure you can claimAustralian Taxation Office
- Research and development tax incentiveInland Revenue (New Zealand)
- e-Tax Guide: Enterprise Innovation SchemeInland Revenue Authority of Singapore
Educational content only, not tax advice. Rules change and eligibility depends on your circumstances, so check the official guidance or speak to a qualified advisor before you claim. See the disclaimer.