Definition
Consumables, for R&D tax relief purposes, are materials and utilities that are consumed or transformed during a qualifying research and development project. Typical categories include raw materials used in prototype construction, chemicals used in laboratory trials, fuel used in pilot plant operation, and electricity, gas and water used in R&D processes. Consumables that become part of a product sold to a customer are not qualifying expenditure, following the change introduced by Finance Act 2015.
How HMRC defines it
HMRC guidance on consumables is at CIRD82300 and CIRD82400 of the CIRD Manual. The legislation is at section 1126 of the Corporation Tax Act 2009. CIRD82400 sets out the consumables-in-products rule, under which items incorporated into a saleable prototype transferred to a customer are excluded, unless the customer acquires the prototype only as a by-product of the R&D process.
Practical example
A materials science company spends £50,000 on specialist alloys used to build test coupons during a qualifying R&D project. The coupons are destroyed in mechanical testing. The £50,000 is included in the consumables category of the claim. Had the coupons been delivered to a paying customer as finished components, the expenditure would be excluded under the consumables-in-products rule.