How do I work out how much of an employee's time counts as R&D?

What the legislation actually requires

Only staffing costs of directors or employees directly and actively engaged in the relevant R&D can qualify as expenditure. Where someone is only partly engaged that way, the appropriate proportion of their staffing costs is treated as attributable — the legislation calls it the “appropriate proportion” and goes no further. It doesn’t set a formula, a minimum recording standard, or a preferred method. See Which staff costs can I include in an R&D claim? for what counts as a staffing cost before this apportionment is applied. People who merely provide secretarial or administrative support to others doing the R&D are not themselves treated as directly and actively engaged, however central their support is to the project running at all — that kind of contribution is dealt with separately, as a qualifying indirect activity, not as a proportion of “directly engaged” time.

This is a deliberate gap, not an oversight. HMRC tried a fixed rule once: for expenditure before 1 April 2003, a three-tier structure applied — under 20% of time on R&D meant nothing qualified, over 80% meant everything qualified, and only the band in between required an apportionment. It was abandoned because companies’ accounting and staffing systems didn’t naturally produce a clean percentage that fitted the bands, and the rule was replaced with the “appropriate proportion” test used ever since, across every version of the relief. The lesson from that history holds today: the requirement is a figure that reflects reality and can be explained, not one calculated to fit a prescribed method.

Methods that work in practice

A timesheet or a project-coded time-recording system, completed as the work happens, is the most straightforward. HMRC’s own list of records useful for checking a claim specifically names timesheets for anyone not engaged on the project full time — see What records do I need to keep to support an R&D tax relief claim? For the fuller record-keeping picture, this sits inside.

Where formal timesheets don’t exist — common in smaller companies — a reasoned estimate from whoever manages the work is accepted, provided it has a stated basis: how the figure was arrived at, and against what (a calendar, a set of project meetings, a delivery schedule). An estimate with no explanation of its basis is not evidence of anything, however confidently it’s presented — see where claims go wrong, below.

Software built specifically for logging time against R&D projects is another route some companies use — Cadence is one example — as an alternative to a spreadsheet or a manual timesheet. Whichever method is used, the test is the same: was the split recorded as the year went, not decided once at the end.

What doesn’t work

A single percentage applied to a whole team, or to a whole year, with nothing showing how it was reached, does not stand up. Financial records don’t help here either — accounts and payroll show what someone was paid, not what they actually did with their time.

Carrying the same percentage forward from a previous year’s claim, without checking whether the work — and therefore the split — actually stayed the same, is a related failure. A split that was right two years ago is not evidence of anything about the year being claimed.

Directors and owner-managers

The same principle applies to directors, but the practical difficulty is usually bigger: a technical director’s week often mixes hands-on R&D work with strategic decisions, sales conversations and general management that has nothing to do with any project. The apportionment still has to isolate the directly and actively engaged proportion from everything else the role covers, and a director’s own sense of how their time splits is a starting point for a conversation, not a figure to write down unexamined.

Support staff and qualifying indirect activities

Time spent by people who support R&D without doing it — administrative help, technical library or information services in support of a project, maintenance of R&D equipment — is not apportioned under the “directly and actively engaged” test at all. Some of it may separately qualify as a qualifying indirect activity, but that is a different test with its own boundary, and the two are not interchangeable. Folding support time into the same percentage as the technical team’s directly engaged time, rather than testing it separately, is one of the more common ways an apportionment ends up wrong in both directions at once — see where claims go wrong.