CIRD84000 - R&D tax relief: categories of qualifying expenditure: externally provided workers
FA00/SCH20/PARA8A
Qualifying expenditure on externally provided workers may qualify for R&D tax relief where it is incurred on or after:
- 27 September 2003 for the SME scheme, and
- 9 April 2003 for the large company scheme.
Externally provided workers are defined at
CIRD84100. This category of qualifying
expenditure addresses the situation where a staff provider is
contracted to supply external workers. This does not include the
recruitment costs of staff provided by employment agencies, nor
does it include the situation where the contract is for more than
the provision of workers and amounts to subcontracting of a part of
the R&D activity. Subcontracting is dealt with at
CIRD84200. The expenditure must be for
the provision of staff and not for other services. So it does not
include payments to self employed consultants
CIRD84100.
The legislation 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.
Whether or not the worker is an employee of the staff
provider, the legislation is based on a tripartite arrangement
between the R&D claimant company, the staff provider and the
individual worker. If another company is inserted between the staff
provider and the worker, for example if the individual has a
personal service company that contracts with the staff provider for
the supply of his or her services to the R&D company, then the
worker will not qualify as an externally provided worker.
The costs of recruitment of staff do not qualify.
The workers must be directly and actively engaged in the
R&D, rather than being support staff such as those providing
secretarial or administrative services. If the workers are only
partly directly and actively engaged on R&D, then a just and
reasonable apportionment of qualifying expenditure should be
made.
Unconnected staff provider
If the staff provider is not connected to the company then 65%
of the expenditure paid to the staff provider for the supply of
externally provided workers is potentially eligible to be treated
as qualifying expenditure.
The deduction when the company and the staff provider are
connected is dealt with at
CIRD84050.
The company may jointly elect with the staff provider to be
treated as connected. Such an election is irrevocable and applies
to all payments under the same contract or arrangement. The
election must be made to HMRC in writing within two years from the
end of the accounting period in which the contract or arrangement
was entered into, (FA00/SCH20/PARA8D). There is no provision for
extending this time limit.
FA02/SCH12/PARA17 (d) adopts the same definition of
expenditure on externally provided workers for the large company
scheme.
