Are we eligible to make a R&D tax credit claim if we were subcontracted by a third party?

If an SME is subcontracted to take part in an R&D project, it can only claim R&D tax relief where the subcontracting company is classified as a large company.

Under the SME scheme, this will mean that SMEs subcontracted by other SMEs are generally unable to claim relief for that specific project. In these cases, the company that commissioned the R&D activity may instead consider the costs within its own claim, subject to the scheme rules.

Where a large company is subcontracted to carry out R&D work, the position differs. Large companies claim R&D tax credit relief under the Research and Development Expenditure Credit (RDEC) scheme. They can claim for qualifying R&D work they perform, regardless of whether the company engaging them is an SME or a large company.

However, for accounting periods beginning on or after 1 April 2024, the UK’s new Merged R&D Scheme applies to most companies. The Merged Scheme retains the principle that SMEs carrying out subcontracted R&D activity can only claim for work where the subcontractor relationship is with a large company.

This rule continues to determine which party is entitled to claim R&D tax relief for subcontracted R&D activity.