In this series of blogs, we’ll be 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.
Last week we talked about overseas costs, and this week it’s the turn of subcontractors. We’ll cover what information HM Revenue & Customs (HMRC) is now looking for in relation to subcontractors and their costs, and how to fill out this part of the Additional Information Form (AIF).
While subcontractor costs remain an allowable expense for R&D tax relief, the amount of information that HMRC requires about these workers has increased significantly. In addition, subcontractor costs are affected by the restrictions on overseas costs.
Under the old SME scheme, any subcontractor costs related to the resolving of technological uncertainties could be included in a claim for R&D tax relief.
For RDEC claims, only costs of subcontractors that were not limited companies could be included. In both cases, the only information required by HMRC was the overall qualifying expenditure.
Under the new RDEC and ERIS schemes, subcontractor costs are allowable for all companies, and the rules are the same for both schemes. HMRC asks for the following information about each subcontractor:
This means that for each and every subcontractor used for the R&D projects, you’ll need to ask about what type of entity they are, their registered location and registration number and, for any R&D carried out overseas by subcontractors, why the claimant feels that the subcontractor is exempt from the overseas restrictions.
You can find more details about the overseas restrictions here.
If the claimant company can’t provide company details or reasons that the subcontractors are exempt from overseas restrictions for the subcontractors alongside their costs and R&D apportionments, then the subcontractor costs cannot be included in a claim for R&D tax relief.
For this reason, it is imperative that advisers update their processes to make sure that this information is gathered alongside the rest of the costs data, and only eligible subcontractors are included in a claim.
In summary, the new RDEC and ERIS schemes place greater scrutiny on subcontractor costs, requiring detailed information about the subcontractors’ status, location, and eligibility under the overseas restrictions.
Ensuring you have all the necessary details at the time of preparing the claim will help avoid delays and potential rejections from HMRC.
Next week, we’ll be taking a closer look at Externally Provided Workers (EPWs) under the new merged scheme regime, including what’s changed and how to ensure you remain compliant when claiming for these costs.
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.
If you’d like to find out more about how WhisperClaims can support your firm, why not book a demo?
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