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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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R&D tax relief: categories of qualifying expenditure: consumable items

CTA09/Ss.1125 & 1126

Revenue expenditure incurred on consumable items employed directly 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 consumable items must be consumed in activity that constitutes R&D for tax purposes, which includes ‘qualifying indirect activities’.

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 directly in R&D

Consumable items employed indirectly are not qualifying expenditure.

So for example, power used in a training facility would be included to the extent that the facility was providing training to directly support an R&D project (para 31(e) but not for training that was required for more general purposes.

Further guidance on the indirect aspects of R&D is given in the BIS Guidelines (formerly DTI Guidelines) (CIRD81900 for the 2004 guidelines).


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, HMRC would accept that expenditure on heating or lighting the part of the property used directly for R&D was being incurred directly on R&D, even if there were trivial non R&D 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 HMRC do not envisage detailed enquiries being desirable to establish a slightly more accurate alternative.