In February 2025 HMRC updated its guidance on subcontracted R&D under the old SME scheme (CIRD84250), following its First-tier Tribunal losses in Collins Construction and Stage One Creative Services. The update abandons the blanket position that SMEs doing R&D within customer contracts could not claim, and replaces it with a case-by-case assessment. In substance, it restores the approach that applied before HMRC hardened its stance in late 2021.
This matters in 2026 for one reason above all: old-scheme accounting periods remain amendable until around 30/31 March 2027, so the companies this guidance affects still have time to act.
What does the updated guidance say?
Who can claim now turns on the whole relationship between customer and contractor, not a single label. The guidance points to factors including:
- Contract wording: does the contract define the contractor’s role in carrying out R&D?
- Customer awareness: did the customer know R&D would be needed?
- Autonomy: how much control did the contractor have over the R&D?
- Financial risk: who bore the risk of the work failing or overrunning?
- Intellectual property: who keeps the rights to what the R&D produces?
No one factor decides it. That is consistent with the tribunal’s view that contracted-out R&D under the old SME scheme has no single definitive test; the background is in our article on the Collins Construction and Stage One verdicts.
Does the guidance still lean towards the customer?
In places, yes. The updated guidance suggests that a customer merely being aware that R&D was needed can point towards the customer holding the claim. That is a noticeably lower bar than the statutory test in the merged scheme, where the customer claims only if it intended or contemplated the specific R&D when the contract was made. Where the facts are close, the guidance should be treated as HMRC’s reading, not the last word: the tribunal decisions are the stronger authority.
What about claims that were refused under the old stance?
Companies fall into three groups. Those whose old-scheme periods are still within the amendment window can file or amend now; our guide to backdated R&D claims covers the deadlines, including the claim notification rules that apply to accounting periods beginning on or after 1 April 2023. Those in open enquiries can put the revised guidance and the tribunal reasoning at the centre of their defence; see how we handle HMRC enquiries. For those whose deadlines have already passed, no general remedy has been announced, and we would not advise waiting for one.
How does this compare with the current rules?
For accounting periods beginning on or after 1 April 2024, the merged scheme settles the question by statute rather than guidance: broadly, the party that intended or contemplated the R&D when the contract was made holds the claim, contractors serving overseas or untaxed customers can claim in their own right, and payments to unconnected subcontractors qualify at 65%. Our page on contracted-out R&D under the merged scheme works through the scenarios. The pattern comes up constantly in engineering work delivered under customer contracts, where the contract wording decides who claims.
If your company did R&D inside customer contracts between 2021 and 2024 and either did not claim or had a claim refused, the window to revisit that is closing in March 2027. Talk it through with a chartered adviser before it does.
Written by Matthew Jones ACA CTA. Last reviewed July 2026.
Sources
- CIRD84250: subcontracted R&D (post-tribunal) — HMRC’s case-by-case factors for deciding who can claim subcontracted R&D after the First-tier Tribunal decisions.
This article describes the rules as they stood at the review date above. The rules change: for the current position, start with our guides or talk to us.
