CIRD84100 - R&D tax relief: categories of qualifying expenditure: externally provided workers: definition
FA00/SCH20/PARA8B
The definition of externally provided workers is based on the
income tax rules for agency workers at Section 44 Income Tax
(Earnings and Pensions) Act 2003 which require staffing providers
to operate PAYE in relation to individual workers supplied to
clients. The main difference is that the externally provided worker
rules also apply where the worker is an employee of the staff
provider.
A person is an externally provided worker in relation to the
claimant company if the following conditions are satisfied:
- he is an individual (not a company),
- he is not a director or employee of the company,
- he personally provides, or is under an obligation personally to
provide, services to the company,
- he is subject to (or to the right of) supervision, direction or
control by the company as to the manner in which those services are
provided,
- his services are supplied to the company by or through the
staff provider (whether or not he is a director or employee of the
staff provider or any other person),
- he provides, or is under an obligation to provide, those
services personally to the company under the terms of a contract
between him and the staff provider,
- the provision of those services does not constitute the
carrying on of activities contracted out by the company, see
CIRD84200.
FA02/SCH12/PARA17 (d) adopts the same definition for the large
company scheme.
Point (b) may be relevant in groups of companies where the
staff provider is in the same group as the claimant company and an
individual is a director or employee of both companies. The
individual cannot be an externally provided worker for the claimant
company because of point (b), but his normal staff costs (as
defined by FA00/SCH20/PARA5) paid by the R&D claimant may
qualify for R&D relief.
Point (f) sets out the need for a contract between the
individual worker and the staff provider (the company paid by the
claimant company). If the worker provides his services through a
contract between another company (for example a personal service
company) and the staff provider, then he will not qualify as an
externally provided worker.
The claimant company should satisfy itself that the
conditions for relief are met before it can include any expenditure
in respect of an externally provided worker in its claim. There
should not normally be a need to examine the detailed terms of the
contract between the staff provider and the worker. Instead a
straightforward way to check whether the conditions are met may be
to ask the staff provider if it is operating PAYE in relation to
the worker. If so, then the claimant company can assume the
conditions at (c) to (g) above are met. If the staff provider has
no UK permanent establishment then the claimant company may have a
similar obligation to operate PAYE in relation to the worker (see
paragraph ESM2012 of the Employment Status Manual). If this is the
case, then this will be evidence that conditions (c) to (g) are
met. In any other cases (for example where the staff provider may
have an obligation to operate PAYE in respect of the worker but is
not doing so), then the claimant will need to make more detailed
checks to ensure the conditions are satisfied.
Point (g) above is an important one, particularly with
regard to the large company scheme where there are more restrictive
rules on the eligibility of subcontracting expenditure for the
relief. To qualify as a payment for externally provided workers the
payment should be just for that, and the characteristics of the
arrangement should support that. For example, one would generally
expect to see active supervision of the workers, and to see charges
based on the time they spent on the job.
Self-employed consultants
A payment to a self employed consultant will not be a payment for an externally provided worker because there will be no contractual arrangement between the consultant and the staff provider as required in point (f) above. So such expenditure is not allowable as being expenditure on externally provided staff. Expenditure described as being on self employed consultants may on its particular facts sometimes prove to be on subcontracted R&D (CIRD84200).
