What is an externally provided worker (EPW)?

EPWs (externally provided workers) are workers who are supplied to a company from an external entity.

These workers function similarly to regular employees but are compensated through invoices sent to the third party staff provider, as opposed to being on the company’s payroll.

EPWs can come from a staffing agency, a connected company, or a personal service company.

During R&D activity, externally provided workers are often integrated into a company’s existing team and may work alongside permanent employees on day-to-day project activities. They can provide any additional resources, specialist expertise or short-term support where a business does not have sufficient internal capacity to carry out the required R&D work.

Unlike subcontractors, EPWs generally work under the direction and supervision of the claimant company. This means that the company typically determines the activities they undertake, how the work is carried out and what objectives they are expected to achieve within a given timeframe. As a result, the treatment of EPW costs for R&D tax relief purposes differs from that of subcontractor costs.

Understanding whether an individual should be treated as an EPW or a subcontractor is important when preparing an R&D tax relief claim, as different rules may apply depending on the nature of the working arrangement.