Do R&D tax credits apply to sole traders?

R&D tax relief is only available to limited companies that are subject to Corporation Tax. Because of this, sole traders cannot claim R&D tax credits directly.

For businesses carrying out qualifying research and development, they will often work with external specialists.

Where a limited company engages a sole trader to support an R&D project, the cost of that work may still form part of the company’s R&D tax relief claim.

Under HMRC guidance, payments made to externally provided workers, including some sole traders, can be treated as eligible expenditure when the work relates to qualifying R&D activity. The company making the R&D tax credit claim must still clearly demonstrate that the activity addressed a scientific or technological uncertainty and was undertaken by a competent professional seeking to advance knowledge or capability beyond the existing baseline.

In practice, this means that while a sole trader cannot submit their own R&D tax relief claim, their services may still contribute to a company’s qualifying R&D expenditure, provided the activity is directly aligned with the R&D project and meets HMRC’s eligibility criteria.