New Subcontracting Guidance

Off the back of the Collins Construction and Stage One Creative Services First Tier Tribunal losses, HMRC has significantly amended its guidance with regard to subcontracted R&D as per CIRD84250. The tribunals determined that:

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• R&D that is “contracted out” has to be specifically requested in the contract.
• Even if R&D happens during a contracted project it doesn’t automatically mean the R&D itself is  “contracted out” as contracts are generally for works and not the R&D itself.

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This contradicts HMRC’s previous guidance interpretation of SMEs being unable to claim R&D tax relief on R&D conducted as a contractor for another SME.

Summary of New Guidance

The new guidance offers a more pragmatic approach when it comes to determining whether the company paying a contractor or the contractor itself should be able to claim R&D tax relief stating ‘each case should be looked at individually’. The factors that will be taken into account when determining who has the right to claim are:

• Was it was clear from the contract that R&D was required by the customer?
• How much autonomy does the contractor have?
• Who holds the financial risk?
• Does the company retain IP arising from the project?

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It will be interesting to see how this new guidance is implemented and whether there will be any effect on historic claims that have been rejected or not made as a result of the old guidance.

HMRC is currently reviewing any ongoing R&D enquiries where the “contracted out” R&D point was contested in light of the recent changes.

If you are interested in learning more about these changes and how they might affect your business or clients moving forward, please get in contact.