Updated advice on subcontractors and subsidies in R&D tax relief – what’s next?

HMRC recently updated its guidance on subcontracting and subsidies in R&D tax relief claims in response to the First Tier Tribunal decisions of Stage One Creative Services Ltd and Collins Construction Ltd.

The changes were wide-ranging and showed a welcome relaxation in HMRCs approach to subcontracted out and subsidised R&D.

In brief, HMRC moved from the stance that if a contract exists between two companies, or a client indirectly funds R&D, then these projects would have to be treated as subcontracted or subsidised and either routed through RDEC or not claimed for, to a more nuanced position.

HMRC’s position is now that funding received must be directly linked to R&D activities to count as a subsidy, and other factors must be considered in assessing whether an R&D project meets the definition of contracted-out R&D.

For example, the level of autonomy, the financial risk and the retention of IP could affect the status of a project.

While these changes are very welcome, and align better with the definitions of subsidies and contracted-out R&D used in the new RDEC and ERIS schemes, many claimants have been left wondering what to do about claims that were rejected by HMRC, or even not submitted due to HMRC’s previous stance.

HMRC have said that they will close enquiries into claims affected by this change, but claims that were previously rejected or not made and have now timed out cannot be resubmitted, even though they would now be seen as eligible for relief.

Any claimant companies or advisers of such companies should consider whether it might be worthwhile resubmitting claims or lobbying HMRC to accept timed-out claims affected by this change.

We recommend contacting your professional body or our friends at The R&D Community to get further advice and insight into your best course of action.

If you’d like to find out how WhisperClaims can support your firm’s R&D Tax service, with innovative software and expert Advice Line support, why not book a demo?

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