Claiming R&D tax relief under the new (merged) RDEC and ERIS schemes: what you need to know about subsidies and subcontracted R&D

In this series of blogs, we’ve been taking you on a deep dive into the main differences between the SME and RDEC schemes and the new RDEC and ERIS schemes for R&D tax relief, making sure you know what additional information you’ll need to gather to prepare a claim under the new regime.

This week it’s the turn of subsidies and subcontracted R&D. We’ll explain the changes, why you need to know about this and how it affects claim preparation.

What’s changed with grants and subsidies?

Under the old SME and RDEC R&D tax relief schemes grants and subsidies had a significant effect on claims.

SMEs that receive financial help for their projects had to route some or all of the qualifying expenditure through RDEC, reducing the tax benefit, and, where subcontractors had been used, the total qualifying expenditure.

For the new RDEC and ERIS schemes these restrictions have been removed, such that grants and subsidies no longer affect a claim.

What’s different about subcontracted R&D?

Under the old RDEC and SME schemes, working out who owns R&D work that has been subcontracted out from one company to another has always been one of the trickier aspects of preparing claims, and even with recent updates remains somewhat opaque.

In addition, the rules around subcontracted R&D were different for each scheme; depended on the size of the company subcontracting the work; and affected which scheme a project is claimed through.

Under the new RDEC and ERIS schemes, the rules are the same for all companies, regardless of which scheme the costs are claimed under.

HMRC have also clarified which party can claim for contracted-out R&D, and it all comes down to two main factors – who initiated the R&D, and who was aware of the need for the R&D to be undertaken.

In any arrangement, HMRC expects that the projects will be included in the RDEC and/or ERIS scheme claim for the company that ‘takes the decision to undertake or initiate R&D’. This means that a company can claim for R&D contracted out by them to a third party if:

• They enter into a contract for activities to be done for them;
• The activities done to meet the contract include R&D and;
• It is reasonable to assume that they intended R&D of the sort to be carried out when entering into the contract.

Conversely, a company can claim for R&D done to fulfil a contract if:

• They took the initiative to undertake the R&D;
• The company contracting out the work did not intend for (or know about) R&D to be done to fulfil the contract and;
• The work meets HMRC’s criteria for eligible R&D.

When preparing a claim, continuing with best practice processes to check subcontracted R&D contracts and records is vital in making sure that the right projects are claimed by the right companies.

This will be a new process for larger companies, which have historically claimed through RDEC as they will not have been able to claim for subcontracted R&D in the past.

In terms of the AIF, we’ve detailed the requirements for subcontractor information here.

As you’ll see, HMRC now asks for details about the limited company subcontractors included in the claim, presumably to enable them to cross-check claims and ensure that no two companies are claiming for the same work.

To this end HMRC asks for the name, registered country and company registration number for all limited company subcontractors included in the claim.

To conclude this series, it’s clear that the new Merged scheme and ERIS schemes have introduced significant changes to how grants, subsidies, and subcontracted R&D are handled.

The removal of grant-related restrictions is a positive shift, simplifying the process and ensuring that financial support no longer reduces the benefit of a claim. Meanwhile, the clarified rules around subcontracted R&D provide much-needed guidance on which party can claim, helping to reduce ambiguity and improve compliance.

As we’ve been exploring, understanding the new requirements and adjusting internal processes to reflect these changes will be key to preparing successful claims under the new regime.

Ensuring accurate and detailed reporting, particularly around subcontractor information in the Additional Information Form, will help advisers stay compliant and avoid delays or challenges from HMRC.

If you missed any posts or need a refresher, you can find the full series here.

Our newly updated WhisperClaims app is designed to handle the new merged scheme seamlessly. With stricter HMRC oversight accountants and advisers need a process that leaves nothing to chance. WhisperClaims keeps you on track with tailored guidance, risk assessments and expert Advice Line support, helping you submit robust & compliant claims with confidence.

Book a demo today to find out how we can support you and your firm.

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