The area of subcontractors and their inclusion within the R&D claim can be complex. Our team is experienced in the range of arrangements our clients enter into. We can clearly identify who, if anyone, in the chain can claim R&D relief for their involvement on the project.
SME Companies
- Can include 65% of subcontracted costs.
- If subcontractors are connected the cost needs to be adjusted to the lower of the invoice value and the cost to the subcontractor.
Large Companies
- Can only include subcontractors if the they are
- a qualifying body, or
- an individual, or
- a partnership, each member of which is an individual
If a SME company is contracted by a large company to undertake activity on its R&D project, but the Large company cannot claim R&D tax relief on the cost e.g. because it is also a company, then there is a possibility that the Contracted To SME can claim under the RDEC regime.
The actual work carried out by the subcontractor does not need not be R&D when considered independently and does not need to be in the UK. An example HMRC’s guidelines use is the testing element of a R&D project. If for example the testing of a product is subcontracted to out to someone with the relevant machinery to undertake the testing, where the testing could be established and routine, the subcontracted work will count as R&D, because it is one component of a larger project that is R&D.
