Posted: 19 / 01 / 2023

With the R&D Tax Relief scheme costing the UK Taxpayer over £5bn, HMRC have significantly increased scrutiny of claims made and introduced new legislation in order to ensure the taxpayer is getting value for this huge sum.

Recent and proposed changes are widespread. One area where change is focused is around the issues of ‘Subcontracted R&D’, with the changes including…

Relief will be refocussed towards innovation in the UK

The costs of subcontracted work will only be allowed where it was incurred on activities undertaken in the UK.

To date, costs could be included in a claim provided they impacted on the Profit and Loss account of a UK registered business. With very few exceptions, the costs paid to Subcontractors outside of the UK will no longer be an allowable expense.

HMRC are applying increased scrutiny where subcontracted or subsidised R&D is takes place

Two recent, high profile, HMRC enquiry and tribunal cases have increased focus on claims where a subcontract relationship exists. When one business carries out R&D to meet customers specifications the nature of that relationship will govern which business can legitimately claim relief.

Has the contractor paid for R&D activity or has the subcontracted business paid for its own R&D and then sold a product to the customer. R&D has taken place but who should claim? Is it subcontracted R&D, subsidised R&D or is it simply IP generated by the subcontractor.

Whichever side of the relationship a business is situated, it must be very clear and careful that it is claiming legitimately, and this is an area which is receiving significant scrutiny by HMRC.

Senior Business Development Manager at Sedulo, Russell McGrath, says of the changes…

“These changes mean it’s more important than ever for businesses to ensure their claim is optimised to its legitimate maximum value, and the workload generated in producing the claim is minimised.

“This is where speaking to someone who is every day plugged into the ever-changing R&D landscape is invaluable. The R&D Tax Relief team at Sedulo is highly experienced at working with businesses on their claims, so if you’d like to ask anything around your R&D tax relief, please give me a call on 07507 902398 or drop me an email at”