Directors are often shareholders of the company and their remuneration is a mixture of dividends and salary.
Historically, it has been beneficial for directors with shares in the company to receive most of their income from dividends and not salary. This method is practised across the UK to minimise the personal tax bill for these directors.
When the company claims R&D tax relief, the company needs to reassess the standard personal tax saving strategy.
This is because dividends are not qualifying R&D expenditure and therefore should be excluded from R&D tax claims.
Directors involvement in R&D Activities
When a director is involved with the R&D activities and they receive dividends, they should take the R&D tax saving into consideration. The R&D saving may exceed the tax saving of paying dividends.
As a reminder, staff costs that can be included in a R&D claim includes:
- Salaries
- Employer’s National Insurance contributions
- Employer pension contributions
- Specific reimbursed expenditure
