Usually, yes, from either side of the contract, but never from both for the same R&D. When one company pays another to carry out R&D, the current rules are built so that each piece of R&D is claimed once, and the contract decides where it sits — a single contract can even split, with the customer claiming the part it specified and the contractor the rest. The answer therefore depends on which side you sit.
If you pay subcontractors
Payments to unconnected subcontractors qualify at 65% of the portion attributable to R&D undertaken in the UK, so a £10,000 invoice for qualifying UK R&D contributes £6,500 to the claim. Two conditions sit around that rate for accounting periods beginning on or after 1 April 2024. Work done overseas counts only within the narrow overseas exception: conditions necessary for the R&D — geographical, environmental, social or regulatory — that are not present in the UK, are present where the work is done, and would be wholly unreasonable to replicate here; cost savings and workforce availability are expressly excluded as justifications. And the R&D must genuinely be yours to claim: you must not yourself be doing the work under terms that hand the claim to your own customer.
The 65% is the unconnected position. Where you and the contractor are connected, CTA 2009 s1134 puts the qualifying element at the whole payment or, if lower, the contractor’s own relevant expenditure on the work; unconnected parties can elect jointly for the same treatment under s1135, in writing and irrevocably, within two years of the end of the accounting period in which the contract was made.
Keep the subcontractor head separate from externally provided workers. A contractor you engage directly to carry out R&D gives you a contractor payment; workers supplied to you through a staff provider, working under your supervision, are externally provided workers, and s1131 puts 65% of the staff provision payment attributable to their qualifying earnings into the claim under that head instead, with s1129 applying a similar lower-of measure, but only where you, the staff provider and the business contracting the worker are all connected. The tests are different — an externally provided worker has to be supplied by or through a staff provider, and their services must not amount to activities you have contracted out — which is why CIRD84100 says a payment to a directly engaged self-employed consultant is not a payment for an externally provided worker.
If you are the contractor doing the work
Often you can claim in your own right. For accounting periods beginning on or after 1 April 2024, the customer claims only where it is reasonable to assume, from the contract terms and the surrounding circumstances, that it intended or contemplated when contracting that R&D of that sort would be done. Where it did not, because it bought an outcome and left the how to you, the claim is yours as the contractor. There is a second route in: where the customer is not acting in the course of a trade within the charge to UK tax — typically an overseas customer with no UK trade — or is an ineligible company (the statutory term, which counts charities, institutions of higher education, scientific research associations and health service bodies as companies for this purpose), the contractor can claim in its own right. That route matters to UK development houses serving international clients, but it is narrower than “overseas customer” suggests: a UK sole-trader customer is within the charge to income tax, so it does not apply there.
The dividing line is the intention test, and it is objective: contract terms and the surrounding circumstances decide it, not either side’s say-so. A contract that specifies the R&D, prices it and takes its output points to the customer claiming; a contract for a deliverable that happens to require R&D the customer never contemplated points to the contractor. Review the wording before either side claims, because HMRC can ask both sides the same question and the answers need to agree.
Claims for periods that began before 1 April 2024 run on the old subcontracting rules, which differ in important ways confirmed by the First-tier Tribunal; our guide covers those separately for backdated claims.
Where to go next
Our contracted-out R&D guide works through the scenarios in both directions, and qualifying costs covers the 65% rate and its neighbours. If you are on either side of a development contract and unsure who holds the claim, resolve it before filing, not in an enquiry.
Sources
- R&D tax relief: the merged scheme and ERIS — the contracted-out rules and UK expenditure restriction.
- CIRD84250: subcontracted R&D, post-tribunal — the old-scheme position for backdated claims.
- CTA 2009 s1133, s1134, s1135 and s1136 — contracted-out R&D and the intended-or-contemplated test, the connected-persons measure of a contractor payment, the joint election, and the 65% default.
- CTA 2009 s1142 — the ineligible company definition: charities, institutions of higher education, scientific research associations, health service bodies and prescribed bodies.
- CTA 2009 s1131, s1129 and CIRD84100 — 65% of the staff provision payment attributable to qualifying earnings where the parties are not all connected, the connected-party measure, the staff provider condition, and why a directly engaged consultant is not an externally provided worker.
This page describes the rules as they stood at the review date above, as general information rather than advice on your circumstances. For how that distinction works, see our terms; for an answer on your own facts, talk to us.