R&D Tax Credits: How to Optimise Sub-Contractor Costs

The R&D tax credits team at Myriad Associates are always delighted to review submitted claims that have been filed by their clients, accounting practices (including the big 4!) and other R&D tax consultants. On many occasions Myriad Associates have been able to identify additional qualifying R&D acivities and costs. The costing experts at Myriad Associates are always amazed by how many R&D tax credit claims have under claimed or incorrectly claimed sub-contractor costs.

The Myriad R&D tax team are delighted to share a few handy tips that aim to ensure that the sub-contractor element of your R&D tax credit claims is fully optimised:

SME Scheme

• Have you claimed for all sub-contractor costs? Did you know that you are able to claim for sub-contractor activities that have been performed outside the UK;
• Did you know that sub-contractors are not just limited to companies. It also includes self-employed contractors (freelancers) and partnerships that are engaged in ‘task’ activities that support the R&D project;
• If the sub-contractor is connected then you may be able to claim more than the 65% restricted rate that applies to unconnected sub-contractors. A connected sub-contractor is one that is connected to the Company and you will be able to claim the lower of the payments made to the sub-contractor or the relevant expenditure of the sub-contractor. Relevant expenditure relates to costs incurred on staffing costs, externally provided workers, consumables items, software;
• Tax Tip: Why not consider if your R&D tax claim can be increased by opting to make your sub-contractors connected. The company and the subcontractor may jointly elect to be treated as if they are connected even though they are not connected.
• If you are deemed to be a sub-contractor to a large company and therefore not entitled to claim why not consider making a claim under large company scheme. The current enhanced relief is only 30% and not the 125% as per the SME scheme, however as they say ‘every penny counts’.

Large Company Scheme

A large company is able to claim expenditure on R&D contracted to an individual, partnership (each member is an individual), however it is unable to claim expenditure if the sub-contractor is a company;