R&D relief, eligible costs - employee versus collaborator

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In order to develop, entrepreneurs have to invest more and more in innovation. Research and development departments are established in companies. The above research is carried out in both new and traditional industries. States, realizing the importance of innovation for the economy, introduce a number of incentives for enterprises to allocate significant resources for this purpose. What are eligible costs in R&D relief? Check!

R&D relief - eligible costs

The taxpayer may take advantage of the research and development tax relief provided that he incurs costs related to research and development activities, the so-called eligible costs. The legislator, introducing the research and development relief, decided that only some costs can be accounted for under it. The amount of the deduction may not exceed the amount of income obtained by the taxpayer of corporate income tax from revenues other than capital gains and the amount of income obtained by the taxpayer of personal income tax from non-agricultural business activities. The types of eligible costs are indicated in Art. 18d paragraph. 2-3 of the Act of February 15, 1992 on corporate income tax, hereinafter referred to as the CIT Act.

Types of eligible costs

The legislator, in the provision of art. 18d paragraph. 2 determined which costs can be included in the eligible costs. They are:

  • receivables incurred in a given month for the titles referred to in Art. 12 sec. 1 of the PIT Act (including income from an employment relationship, homework or service relationship) and ZUS contributions financed by the payer for these receivables, to the extent that the time allocated to the implementation of research and development activities remains in the general working time employee in a given month;

  • receivables incurred in a given month under a mandate contract or for a specific work concluded with a natural person and ZUS contributions financed by the payer for these receivables, to the extent that the time allocated to the provision of research and development services remains in the entire time allocated to performance of a service on the basis of a mandate contract or a specific specific task contract in a given month;

  • purchase of materials and raw materials directly related to the conducted research and development activity;

  • purchase of non-fixed specialist equipment used directly in the conducted research and development activities, in particular laboratory vessels and utensils as well as measuring devices;

  • expert opinions, opinions, advisory services and equivalent services, provided or performed on the basis of a contract by an entity referred to in art. 7 sec. 1 points 1, 2 and 4-8 of the Law on Higher Education and Science, as well as the purchase from such an entity of the results of its scientific research for the purposes of research and development;

  • paid use of scientific and research equipment used only in research and development activities, if such use does not result from an agreement concluded with an entity related to the taxpayer within the meaning of the CIT Act;

  • purchase of the service of using scientific and research equipment only for the purposes of research and development activities, if the purchase of the service does not result from an agreement concluded with an entity related to the taxpayer within the meaning of the CIT Act;

  • costs of obtaining and maintaining a patent, protection right for a utility model, rights from registration of an industrial design;

  • made in a given tax year, classified as tax deductible costs, depreciation write-offs on fixed assets and intangible assets used in research and development activities, with the exception of passenger cars and structures, buildings and premises being a separate property (see Article 18d (2a) and 3 of the CIT Act).

Employee costs

At the outset, it should be remembered that eligible costs are deductible if they have not been refunded to the taxpayer in any form or have not been deducted from the income tax base (Article 18d (5) of the CIT Act). Employee costs are the most frequently deducted costs under the research and development tax credit. However, in practice, usually employees are not only involved in research and development.

Example 1.

The company is engaged in research into new drugs. The company has established a research and development department. It employs employees who, apart from research, deal with other tasks in the company. They are related to the current production. The taxpayer wants to consider the above costs as eligible costs. He wonders how to extract them.

It should be stated that the tax regulations make it possible to recognize as eligible costs receivables for remuneration of an employee who pursues the indicated goal, i.e. carries out research and development works. An employee employed to carry out research and development activities should be considered to be an employee whose responsibilities include active participation in the research and development work carried out. However, it is also important that the employee actually performs research and development tasks. Therefore, it is not enough that an employment contract or other document confirms that the scope of the employee's competences includes performing activities constituting the implementation of research and development activities, and that the employee must actually participate in these works. Only then will the remuneration of such an employee and the costs of benefits incurred for him constitute the entire eligible cost of the enterprise. In a situation where an employee performs duties not only related to research and development activities, it is reasonable to separate (exclude from research and development relief) this part of remuneration and benefits paid to employees involved in research and development activities, as well as contributions from these revenues specified in the Act of 13 October 1998 on the social insurance system, which is not related to the implementation of research and development activities. It should be noted here that the legislator, in the wording of Art. 18d paragraph. 2 point 1 of the CIT Act refers to the working time devoted to the implementation of research and development activities, and therefore to the time actually devoted to this purpose. In the analyzed case, the taxpayer must therefore introduce a work time record, in which he will show exactly how much time the employee will spend on research and development work. Start a free 30-day trial period with no strings attached!

Co-workers - R&D relief

When conducting research and development activities, we cannot always use only our own employees. In many cases, we need to recruit qualified external personnel.

Example 2.

The taxpayer conducts research on a new type of treatment lamp. The company has its own research and development department. An analysis of his human resources showed that he does not have an expert in healing lamp software. The taxpayer could not find a specialist willing to work in the company. Therefore, he used the services of an external specialist with whom he concluded a mandate contract. Can contract costs be eligible costs?

It should be noted that from January 1, 2018, tax regulations allow for recognizing as eligible costs also receivables from the titles referred to in art. 13 point 8 lit. and the PIT Act. We would like to remind you that revenues from activities performed in person are revenues from the provision of services on the basis of a mandate contract or a specific task contract, obtained only from a natural person conducting business activity, a legal person and its organizational unit and an organizational unit without legal personality, except for revenues obtained on the basis of contracts concluded as part of non-agricultural business activity conducted by the taxpayer.

It follows from the above that a taxpayer of income tax from legal persons conducting research and development activities may include as eligible costs the costs of remuneration under a mandate contract or a contract for specific work concluded with a natural person not conducting business activity, in which the time allocated to the provision of services in the field of research activity -development service remains in the entire time allocated to the performance of the service on the basis of a contract of mandate or a contract for specific work in a given month.

Expenditure incurred by the company in relation to associates' costs, such as salary, may therefore constitute eligible costs. They constitute eligible costs in the part in which the time allocated to the performance of the service in the scope of research and development activity remains in the entire time allocated to the performance of the service on the basis of a mandate contract or a specific specific task contract in a given month.

To sum up, the taxpayer may count as eligible costs the costs related to employing an employee and those related to a co-worker. The above solution should be considered correct as many specialists do not want to be associated with one employer.