What types of external or third-party costs can be claimed?

Under the UK’s Research and Development (R&D) tax relief schemes, businesses can claim not only direct costs incurred by their own staff, but also certain external or third-party costs directly related to qualifying R&D projects. These costs can significantly contribute to a company’s overall R&D expenditure and potentially lead to substantial tax benefits.

The eligible external or third-party costs that can be claimed typically include payments made to subcontractors and payments for Externally Provided Workers (EPWs). Subcontractor costs are claimable when a company hires external parties to perform R&D activities on their behalf. Similarly, payments for EPWs, which are individuals engaged through agencies or other intermediaries, can also be claimed as part of the R&D expenditure.

In addition to subcontractor and EPW costs, other qualifying external expenses include fees paid for research conducted by universities, scientific institutions, or research organisations on behalf of the claiming company.

Generally, subcontracted R&D activities can only be claimed under the Small and Medium Enterprise (SME) scheme. However, in certain specific circumstances, these can be claimed under Research and Development Expenditure Credit (RDEC); for instance, when an individual, a partnership of individuals, a qualifying body, or a scientific research organisation is engaged to carry out the R&D.

The amount that can be included for relief depends on whether any of the subcontractors or EPWs are connected to your business. At Moore R&D, we can help maximise your claim for relief by assessing the relationship between your business and third parties.