Hours criterion

Definition

Within the WBSO, the hours criterion is the requirement that a sole trader spends at least 500 R&D hours per calendar year on research and development work to qualify for the R&D deduction in income tax. Unlike employers, who receive the WBSO benefit as a reduction on the payroll tax due over a calculated R&D base, sole traders who meet this hours criterion receive a fixed deduction instead of a base calculation. This deduction lowers taxable profit in income tax and is therefore independent of the exact R&D hourly wage or costs incurred. To demonstrate that you meet the hours criterion, you must keep proper hour records showing, per day and per project, how much time you spent on qualifying R&D — only hours spent on work that meets the requirements of technical novelty and technical uncertainty count. If you fall short of the 500 hours, the right to the R&D deduction lapses for that year, even if you did hold an S&O declaration. The hours criterion is therefore a separate, additional condition that applies specifically to sole traders, on top of the S&O declaration itself.

Frequently asked questions

How many WBSO hours do you need to make as a sole trader?

As a sole trader you need to spend at least 500 R&D hours per calendar year on research and development work to meet the hours criterion.

What do you get if you meet the hours criterion?

Meeting the hours criterion gives you a fixed R&D deduction in income tax instead of a calculation over the R&D base.

What happens if you fall short of the 500 hours?

If you do not reach 500 R&D hours, the right to the R&D deduction lapses for that year, even if you did hold an S&O declaration.