Can I claim for work that has been subcontracted to my company?
Understanding whether your business can claim Research and Development (R&D) tax relief for a subcontracted project depends on your company’s size and the nature of the subcontracting relationship. The UK government offers two schemes: the Small and Medium Enterprises (SME) scheme and the Research and Development Expenditure Credit (RDEC) scheme. The legislation surrounding R&D tax relief claims (CTA 2009 Part 3 Chapter 6A and Part 13) has been written with something important in mind – where a subcontracting relationship exists, only one business should be able to claim R&D tax relief on a specific project that has been undertaken.
Let’s consider various scenarios, which are as follows:
- If your business is an SME subcontracted by another SME to work on an R&D project, then you are unable to make a claim under the SME scheme. Furthermore, your business will also be unable to claim under the RDEC scheme.
- If your business is an SME subcontracted by a Large Company (LC) to work on an R&D project, you can make a claim under the RDEC scheme, regardless of who bears the risk and owns the rights to the R&D results. The LC cannot claim R&D tax relief for the payments made to your business.
- Now, if your business is a LC subcontracted by an SME to work on an R&D project, the SME can claim under the SME scheme if it is the entity that bears the risk and owns the rights to the R&D results. However, your LC cannot claim R&D tax relief for your subcontracted work.
- Lastly, if your business is a LC subcontracted by another LC, you can claim the relief under the RDEC scheme as normal.
These scenarios show that claiming R&D tax relief on subcontracted work involves understanding the nuances of both your business and the specific subcontracting relationship.
At Moore R&D, we have a wealth of experience helping companies navigate these complexities. We can help you identify which of the projects that are being considered for R&D tax relief are eligible, depending on whether a claim is being made under the SME or RDEC scheme.
If your business is part of a subcontracting relationship, and you are carrying out innovative work that seeks to advance a field of science or technology through the resolution of scientific or technological uncertainties, contact us today to explore your R&D tax relief options.
