R&D tax relief for directors – pension contributions considered

Companies investing in innovation can claim R&D tax relief to reduce their tax liability. This relief applies to eligible staff costs, which include salaries, employer National Insurance, and pension contributions. If a company qualifies for R&D tax relief for directors, it may be more tax-efficient to pay pension contributions rather than dividends for those involved in R&D activities.

Why Pension Contributions Are More Tax-Efficient Than Dividends

If a director is actively engaged in R&D, paying pension contributions instead of dividends can improve the company’s R&D tax credit claim.

  • If a company qualifies for R&D relief, remember that it might be more tax-efficient to pay a director engaged in such activities contributions towards his pension scheme rather than pay dividends.
  • The dividends will never count as eligible staff costs and so do not improve the R&D credit.
  • Pension contributions, however, are included in eligible R&D costs, enhancing the claim and reducing taxable profits.

This approach can increase tax efficiency, benefiting both the company and the director’s long-term financial security.

Optimising R&D Tax Relief

To maximise R&D tax relief for directors, consider the following:

  • Pay a salary or pension contributions instead of dividends for directors working on R&D projects.
  • Ensure payroll records clearly identify R&D-related staff costs.
  • Keep detailed documentation of R&D activities for HMRC compliance.

Careful structuring of payments ensures that the company makes the most of available relief while supporting the director’s financial planning.

How We Can Help

Understanding R&D tax relief for directors can be complex, but we can help ensure you claim the maximum benefit while remaining tax-efficient. As leaders in the field of tax, we’re always poised to clarify the complexities. Plus, we offer a free introductory meeting. We know how important it is to meet your professionals before you commit – so do suss us out! 

For expert guidance on R&D tax relief contact us today.