What is a subcontractor in the context of R&D?

Under HMRC’s definition, a subcontractor is an external business or individual that is brought on board to perform specific services in relation to the R&D project under a contractual arrangement.

Subcontractors are commonly used when a project requires specialist technical knowledge, equipment or capabilities that are not readily available within the claimant company. The subcontractors may undertake specific tasks, contribute to particular stages of the project development or even provide expertise which supports the overall research and development activity. Depending on the project, this could include specialist engineering, software development, testing, analysis or design work.

In most cases, the relationship is administered by a contract that sets out the scope of the work, the expected deliverables and the agreed payment terms. The nature of this contractual arrangement is important when determining how costs should be treated for R&D tax relief purposes and whether they fall within the relevant expenditure categories.