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R&D Tax Relief for Subcontractors

11 Mar 2022

We often hear from companies that they don’t believe they are eligible to claim R&D tax relief as, for the majority of their work, they are acting as subcontractors for other companies.

In some cases this might be a correct assumption, however, it’s not always the case.  It can be quite common for a company undertaking an R&D project to subcontract part or all of the development.

In these cases, we must try to decide whether it is the subcontracting company, the subcontracted company or both which make the R&D claim.

Whilst there are no specific rules with regards to subcontracted relationships, in order to establish which party should make the claim for R&D tax relief, HMRC will typically consider the following:

  • Financial Risk – If the work undertaken by the subcontractor was unsuccessful, would the subcontracting company still have to pay them? If not, then it could well be that the subcontractor should claim for the project.
  • Level of Autonomy – Is the subcontractor working to a deliverable? and is how they achieve that entirely up to them or are they supervised? If it’s the latter, they might be an externally provided worker (EPW) and not a subcontractor at all.
  • Owner of the Intellectual property (IP) – Whilst the requirement for a company claiming R&D tax relief to own any IP from the project was scrapped years ago, HMRC will still take into account who owns the IP from a project when determining who should be making the claim.

In some cases, it may be that both the subcontracting company and the subcontractor can submit an R&D claim for their own individual costs spent on the same project.

If you have any questions on this blog or anything R&D related, please contact us at info@randdconsulting.co.uk.

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