“Maximising your R&D Tax Credit claim” – what does that phrase mean?
For us, it means that we help you to delve deep into all aspects of your R&D projects, understand how, why and who completed the research and development. In this blog, we are going to visit the ‘WHO’ and understand what can be claimed for sub-contracted work.
Sub-contractor Costs – SME Scheme
It is common practice for UK SME’s to contract work to specialist businesses to assist with parts of their research and development projects; especially when they do not hold the skills, equipment or resource in-house.
For example, Business A may contract testing/trials to Business B, as they already have the capability to perform the activity, rather than Business A investing heavily to bring it in-house.
Luckily, this practice is recognised by HMRC as ‘R&D activity’ and therefore can be included in your R&D Tax Credit claim.
Under the SME Scheme, the general rule is that you can claim a fixed amount of 65% of your sub-contractor’s invoices. Why 65% and not 100%? – this is to account for the sub-contractor’s ‘profit’ on those invoices.
Additionally, there are a few points to be mindful of, to achieve a ‘maximised claim’ – the sub-contractor does not have to be a UK based business, nor does the activity have to be performed in the UK. The third point to remember is less straight forward; in the simplest terms – the work completed by the sub-contractor needs to be considered a part of your wider R&D project but it does not have to be considered ‘R&D’ when looked at individually.
For example – you may sub-contract another business to do administrative work for the project such as data input, pay-roll or project management – these activities are classed as ‘in-direct eligible costs’ as they are not directly R&D but are essential to the running of your R&D project.
Sub-contractor Costs – RDEC Scheme
For any size business claiming under the RDEC Scheme, the rules are entirely different!
On a whole, sub-contracting to other ‘businesses’ are not included within RDEC; however, sub-contracting costs can be claimed, if the R&D work has been performed by:
- An individual, or partnership of individuals
- A charity
- A higher education institute (university)
- Scientific research organisation
- Health service body
- Externally provided workers (workers provided by an agency that you give ‘work packages’ to.)
If the sub-contractor falls under any of the above, it is possible to up to claim 100% of their costs.
Overall, the RDEC Scheme is no-where near as generous as the SME Scheme – providing around 10% pay-back compared to up to 33% from the SME scheme – however in the aim of ‘maximising your claim’, it should not be overlooked!
Claiming for work you have completed on behalf of a client
This is where lines can become blurry – what happens if you are the sub-contracted business?
In this instance, there are multiple areas of your project that need to be investigated and interpreted against all the relevant HMRC guidelines, to build your ‘maximised claim’. Luckily, this is something that the Swift R&D process can help you to do, making this process as painless as possible!
You will need to consider:
- Who your client is e.g. SME or Large Enterprise
- Contracts between you and your client
- IP ownership
- Risk e.g. who does this lie with
- Payment format e.g. per/hour for development or for the finished product
- Whether the client makes payment for ‘product use’ e.g. subscription per month/per user
All of these will help us to decipher how much of the project work is eligible for an R&D Tax Credit claim, and whether the claim can be made via the SME or RDEC Scheme, or sometimes even both.
Sub-contract costs are just one of the elements to consider when ‘maximising your R&D Tax Credit claim’.
The Swift R&D online portal has been specially designed to help you decipher all eligible R&D activities and expenditure, building a robust claim that is 100% maximised!
Get started today by checking how much your R&D Tax Credit claim could be worth, using our online R&D Tax Credit Calculator.
Our team of expert Consultant’s are on hand to offer assistance if you have any queries – please don’t hesitate to get in touch with us.