R&D tax credits for subcontractors
Research and development tax relief claims, like many other type of tax claim, can be complex. Qualifying costs typically include staff salaries, materials and software, but for many companies, there’s also the question of subcontractors. While the rate of relief differs slightly from other elements of expenditure, it is possible to claim R&D tax credits for subcontractors. Here, we take a more in-depth look at the guidelines.
What is subcontracted work?
For R&D tax purposes, subcontracting is the engagement of another company, individual or partnership of individuals in your R&D project. The subcontractor is not required to be a UK resident or to perform the work within the UK, and the work they undertake may not necessarily be R&D when looked at in isolation. It must, however, form a part of the overall R&D activity.
What should be considered in the claim?
In order to claim R&D tax credits for subcontractors, the relationship between your business and the subcontractor must adhere to the following criteria:
- The subcontractor should have a degree of autonomy in their activities relating to the R&D project
- The subcontractor should be paid regardless of the success of the project and your business should absorb failures or overruns
- A specific part of the project (not the whole thing) should be contracted out, with the subcontractor receiving a detailed brief on the work to be undertaken
Another indicating factor will be intellectual property. This should ultimately remain with your business rather than the subcontractor, but is a complex area and is therefore not a conclusive factor in your claim.
How much can be claimed for subcontractors?
Under the SME scheme, the R&D tax incentive is such that up to 65% of subcontracting costs can be reimbursed, provided the subcontractor is unconnected. In other words, the two companies are not in the same umbrella group.
Under the RDEC scheme, your business can only claim subcontractor costs on research and development work if the subcontractor is:
- An individual or partnership of individuals
- A charity
- A higher education institute
- A scientific research organisation
- A health service body
If they meet one of the above definitions, it’s possible to claim back 100% of the expenditure.
Find out more about R&D tax credits for subcontractors
At R&D Tax Solutions, our experts have helped businesses across a variety of sectors to make successful claims that include subcontracting costs. We’ll help you to identify which expenses qualify and maximise the value of your claim.
To find out whether your business can include subcontractor costs in its R&D tax claim, or for more information about R&D tax credits and whether your activity is eligible, contact us today on 0161 298 1010. Alternatively, visit our offices in Manchester for advice.
