How to Apportion Your R&D Costs 

While detailed contemporaneous documents and records are the ideal, many companies—especially smaller ones or first-time claimants—may lack such documentation. Fortunately, HMRC allows for cost apportionment based on a “just and reasonable” principle. This article outlines how companies can apply this principle across qualifying cost categories without relying on formal timesheets.

The 'Just and Reasonable' Principle in HMRC Guidance

Staffing Records

HMRC’s guidance (notably in the Corporate Intangibles Research and Development Manual) accepts that detailed timesheets are not always maintained. Where precise records are unavailable, claimants may apply a “just and reasonable” approach to apportion staffing costs to R&D. However, the onus is on the company to justify their methodology credibly.

This allows for alternative forms of evidence, provided the method:

• Clearly identifies R&D activities and the staff involved.

• Aligns with technical documentation and other corroborating materials.

• Is consistently applied and supported by logic.

Alternative Methods for Apportioning Staff Costs 

1. Project Documentation and Technical Records

Strong project documentation provides foundational evidence of R&D activities:

• Project Plans – Define the scope, objectives, and methodology, clarifying the R&D focus and who’s involved.

• Technical Reports & Progress Updates – Detail uncertainties, achievements, and contributors to the R&D process.

• Meeting Minutes – Document discussions on technical challenges, naming attendees and their roles.

• Experimental Logs & Lab Notebooks – Track tests, trials, and personnel engaged in scientific work.

• Design Documents & Blueprints – Demonstrate development stages and staff contributions in product/process design.

2. Employee Interviews and Estimates

Structured interviews can help reconstruct time allocations:

• Structured Questionnaires – Encourage employees to reflect on their R&D contributions and time spent.

• Consistency Checks – Cross-reference with emails, project files, and supporting evidence.

• Managerial Review – Project leads verify estimates, ensuring credibility and oversight.

• Focus on Core R&D – Only include activities involving technological or scientific uncertainty.

3. Salary Allocation and Job Descriptions

Roles and compensation can help inform reasonable apportionment:

• Job Roles and Responsibilities – Higher proportions may be justifiable for roles inherently focused on R&D.

• Salary Analysis – Higher compensation for R&D expertise can support higher time allocations.

• Departmental Allocation – Costs associated with a designated R&D department may reasonably be attributed to qualifying activities.

4. Financial Records and Other Supporting Documentation

Broader company records can indirectly evidence R&D effort:

• Payroll Records – Validate employee status and compensation.

• Invoices – Prove procurement of resources explicitly used for R&D.

• Grant Documentation – Support project scope, personnel involvement and purpose.

• Board Minutes & Strategic Plans – Confirm organisational focus and investment in R&D.

5. Expert Opinion

Where internal records are insufficient, expert evaluation can support apportionment:

• An industry expert can offer a professional judgement on what proportion of time would be reasonably spent on R&D activities by technically skilled staf

Best Practices for Justifying Apportionment

To make a strong case without timesheets:

• Document Everything – Archive all materials used to support apportionment, from interview records to technical files.

• Be Consistent – Apply the same apportionment logic across all projects and staff.

• Provide a Clear Narrative – Explain project objectives, uncertainties tackled, and the rationale for claimed costs.

• Be Realistic – Avoid over-claiming, especially where evidence doesn’t support 100% R&D time for employees.

• Seek Professional Advice – R&D tax specialists can help prepare robust claims and ensure they meet HMRC standards.

Apportioning Materials Consumed and Energy Costs

Materials

Consumables include materials used up during R&D. If only partially used for qualifying work or involved in mixed-use production, a reasonable apportionment is needed.

Common Apportionment Methods:

• Direct Measurement – Track quantities consumed for R&D.

• Project-Specific Usage – Link material purchases to a specific R&D project via orders or inventory records.

• Proportional Allocation, based on:

  • • Output – R&D outputs vs. total production

    • Time – Time machinery is used for R&D

    • Technical Estimates – Engineer estimates of R&D vs. non-R&D consumption.

Note: If the item produced is sold as part of normal business, any materials integrated into it must be excluded from the R&D claim.

Energy Costs (Water, Fuel, Power)

Energy costs are often a significant overhead for companies conducting R&D, especially those with laboratories, testing facilities, or energy-intensive processes. Apportionment is required when the energy supply is not separately metered for R&D activities.

• Floor Area: A common and pragmatic approach is to apportion energy costs based on the proportion of floor area dedicated to R&D activities within a property. This assumes a relatively uniform energy consumption per square meter.

• Staff Numbers: If R&D activities are primarily driven by personnel, a proportion based on the number of R&D staff relative to total staff can be a reasonable proxy for energy consumption related to R&D.

• Equipment Usage: For specific energy-intensive R&D equipment, an estimate of the energy consumed by that equipment during R&D operations can be made. This might involve using manufacturer specifications or monitoring usage over a representative period.

• Technical Estimates: Similar to materials, technical personnel can provide estimates of energy consumption directly attributable to R&D processes, especially if they have insights into the power requirements of specific R&D equipment or experiments

• Activity-Based Allocation: If a company has a robust activity-based costing system, it might be possible to allocate energy costs based on the proportion of R&D activities within the overall operations.

Where a one-off item is being developed—such as a large piece of machinery—the additional energy consumed during its initial creation, compared to the energy that would be required to reproduce it after the R&D has been codified, can be attributed to R&D. This difference reflects the inefficiencies and experimentation inherent in the R&D process and should be included in the claim.

HMRC favours a pragmatic, well-documented approach over overly precise yet burdensome methods.

Apportioning Software Licensing, Data & Hosting Costs

Software Licensing

If software is used partially for R&D, costs should be reasonably apportioned:

• User-Based Apportionment: If a software license is used by multiple employees, some of whom are involved in R&D and others are not, the cost can be apportioned based on the proportion of R&D staff using the software. This is particularly suitable when a software product is used by both R&D and non-R&D personnel.

• Usage-Based Apportionment: For software where usage can be tracked (e.g., by project, by feature, or by time spent within the application), the cost can be apportioned based on the actual R&D-related usage. This might involve internal logging or reports from the software itself.

• Project-Specific Licenses: If a software license is acquired specifically for an R&D project and its use is entirely dedicated to that project, then 100% of the cost can be claimed.

• Functionality-Based Apportionment: If a software suite has distinct modules or functionalities, some of which are exclusively used for R&D and others for non-R&D, the cost can be apportioned based on the relative cost or usage of the R&D-specific functionalities.

Be aware that a software license for software integrated into the final product is not a claimable cost.

HMRC states that a pragmatic approach should be adopted.

Data and Hosting Costs

Allowable since April 2023, these include cloud computing and storage used for R&D.

Apportionment Methods:

• Storage Volume: If data storage is a primary cost driver, the cost can be apportioned based on the volume of data directly related to R&D projects compared to the total data stored.

• Processing Power/Compute Usage: For cloud services where compute resources are consumed, the cost can be apportioned based on the processing power or compute time utilised for R&D activities.

• Server/Instance Allocation: If dedicated servers or cloud instances are used for R&D, their costs can be fully attributed. If shared, apportionment can be based on the proportion of R&D projects running on those resources.

• Network Traffic: For data transfer costs, apportionment can be based on the volume of network traffic generated by R&D activities.

• Staff Time Proxy: Similar to other indirect costs, if direct measurement is difficult, the apportionment of data and hosting costs can be linked to the proportion of R&D staff time, assuming a correlation between staff activity and resource consumption.

• Project-Specific Accounts/Environments: Setting up separate accounts or environments for R&D activities within cloud platforms can simplify direct attribution of costs.

As with other categories of expenditure, HMRC will accept a reasonable apportionment where data or cloud services are used for multiple purposes within the business. The key is to have a clear and justifiable methodology that can be supported by available records.

Conclusion

Timesheets and other contemporaneous documentation may simplify R&D claims, but their absence doesn’t invalidate eligibility under RDEC. A credible and well-documented apportionment methodology—covering staffing, materials, energy, software, and data costs—can meet HMRC’s expectations under the “just and reasonable” principle.

By using available records, structured estimates, and sound logic, businesses can build a compelling and defensible claim. Working with R&D tax specialists further improves the quality and success rate of submissions, ensuring compliance while maximising relief.

Read more about what costs qualify for RDEC claims.

Read more about documenting RDEC claims.