Who claims the R&D relief on work one company does for another?

Behind the answer

The test the checker applies, what turns it, and the questions it raises on the way.

What the checker decides

Six questions of its own, in this order.

First, which rules apply: the accounting period's start date decides the old scheme against the current one, and settles nothing else. A period that began on 1 March 2024 sits under the old rules for all twelve months, as which R&D scheme applies sets out. Second, which side of the contract you are on, because customer and contractor reach relief through different sections of the merged scheme, Chapter 1A of Part 13 of CTA 2009, which begins at section 1042A.

Third, fourth and fifth, the three limbs of the test, as three questions rather than one. Two are quickly answered: a contract for activities to be undertaken for the customer, and work meeting its obligations that includes R&D. The third decides most contracts. Its words are these.

"it is reasonable to assume, having regard to the terms of the contract and any surrounding circumstances, that the person intended or contemplated when entering into the contract that research and development of that sort would be undertaken in order to meet those obligations"

CTA 2009 s1133(2)(c)

All three are needed. HMRC puts the working rule more briefly: "The general rule is that only the party who takes the decision to undertake or initiate R&D will be able to claim" (CIRD161000). Sixth, the facts around the contract: who the customer is, who sits above it, where the work was done, and when the other side's period began.

One gate sits under all of this. Relief is given for an accounting period and only where the expenditure is deductible in computing taxable profit, so the claimant must be a company within the charge to corporation tax (CIRD81200), and it is claimed in that company’s own corporation tax return. Having tax to pay is not the gate: a loss-making company claims and takes the credit as a payment.

Three contracts, run through the checker

Three ordinary arrangements, the answers each produces, and what comes back.

What it deliberately does not model

It does not read your contract, your tender documents or the correspondence around them, and the statutory test is decided on exactly those. It does not test whether the work was R&D at all: that is the prior question, and it has its own checker. It does not test whether a cost qualifies, apply the PAYE and NIC cap, or value anything: the claim value calculator does that, and the 30% intensity condition at CTA 2009 s1045ZA has a calculator of its own.

It does not score the old-scheme factors. HMRC lists them "in order of the weight likely to be attached to them" and says in terms that there are no tests (CIRD84250), so a number laid over them would be an invented rule. Nor does it settle the position where the two accounting periods fall either side of 1 April 2024, or model the Northern Ireland registered-office route into the overseas exception, or the ring fence trade rate. It is a first read, not a review of your claim.

What changes the answer

The intention limb, more than anything else. It is decided on documents most companies have not read since they signed them, and the answer given from memory is often not the answer in the tender file.

Then the chain above your immediate customer, which is where a confident answer most often turns out to be wrong. Then the two accounting periods, which nobody thinks to compare until someone asks. Then where the work was actually done: a payment to a UK-registered contractor whose team works abroad fails the UK test (overseas R&D costs).

Questions

Does a customer contract mean we cannot claim?

No, not automatically. For periods beginning on or after 1 April 2024, the customer claims only where the intention limb is met. That limb asks whether it is reasonable to assume, from the contract terms and the surrounding circumstances, that the customer intended or contemplated R&D of that sort when it contracted (CTA 2009 s1133(2)(c)). Where it did not, the contractor claims in its own right.

The contract decides it rather than the invoice, and a contract may be written, verbal or implied (CIRD161000). The question is not whether you signed something, but what the papers show the customer had in mind. Our guide to contracted-out R&D works both directions through.

What does "intended or contemplated" mean?

That the customer had R&D of that sort in mind when the contract was made. Not innovation in some general sense, and not a description written afterwards. The test is objective: the terms and the surrounding circumstances decide it (CTA 2009 s1133(2)(c)).

The evidence is the contract, the technical schedules, the tender documents and the correspondence around them. Neither side can settle it by assertion, but HMRC does not ignore the parties: where the two of them discuss the point and reach an evidenced agreement about which of them claims, HMRC “will, where this agreement can be evidenced, regard such agreement as persuasive unless it appears that the parties have not applied legislation reasonably, or have failed to take into account an important circumstance” (CIRD161000). There is not yet a body of tribunal decisions on the new wording, so the documented position is the strong one.

The threshold is higher than awareness. Under the heading Meaning of “intended or contemplated”, HMRC says the phrase “goes beyond mere awareness that R&D will take place and requires a specific appreciation of what R&D will be done and therefore the ability to understand and specify that”. It adds that “even where A happens to have detailed knowledge of exactly the kind of work to be carried out by B, it will not intend that R&D be done if, as a matter of fact, it is indifferent to how B delivers the contract deliverables”. In that passage HMRC’s A is the customer and B the contractor. Knowing that R&D will be needed is not the test. Being able to specify the R&D is.

HMRC’s longer worked examples turn on that threshold, and they are its published reading of the statutory words rather than tribunal decisions (CIRD162100). In the first, the customer “understands that R&D is required and provides a detailed specification of product requirements” but “does not possess the specialist expertise”, and HMRC’s answer is that the contractor claims. The second runs the same way because the customer “is unable to specify the R&D that would be required”, and so does the third. So a customer who writes a demanding specification for a deliverable and leaves the technical route to the company building it does not hold the claim on these examples, however clearly it knew that something would have to be worked out.

What about work we did before the contract existed?

It can be your own R&D, and a later contract does not take it away. HMRC's published position is plain. A potential contractor "may carry out work for which it is eligible to claim R&D relief, even if it goes on later to undertake R&D contracted to it by the client and for which only the client can claim" (CIRD161000). Relief "can be claimed for such activities where they meet the usual conditions to qualify".

Two further points sit in the same paragraph, in which HMRC’s “A” is the contractor rather than the customer. Whether a contract for the delivery phase is eventually agreed makes no difference, and “even if a contract later reimburses A for these pre-contract activities, that does not prevent A from claiming for them”. HMRC adds that “neither does the reimbursement allow the client to claim for that work”.

What the manual is describing is bidding work, and its marker is risk: the activities "are carried out at A's risk; there is no contract in place and the customer may ultimately choose an alternative provider". A company would need to be able to show the dates, the scoping work itself, the tender it supported, and a clean line where the contract begins. Work done after that line "is R&D that was intended by the client to be carried out by A". This is HMRC’s own guidance rather than a tested point: no tribunal decision on it has been reported as at 21 September 2026, and the ordinary conditions for relief still have to be met.

Our customer is overseas. Can we claim?

Often, and the reason is narrower than "overseas". Two kinds of customer open the route: an ineligible company, and a person not acting, in contracting the R&D out, in the course of a trade, profession or vocation within the charge to tax. Where every person who contracted it out to you is one of those, you claim on your own costs (CTA 2009 s1042F, and s1053A for ERIS).

"Each person" means the chain, not the company that signed your contract: HMRC works an example in which a UK customer at the top defeats a UK subsidiary's claim (CIRD162000, example 5). "Within the charge to tax" is wider than corporation tax, so a UK sole-trader customer does not open the route. An overseas customer trading here through a permanent establishment may be within the charge. HMRC’s guidance reaches permanent establishments only as claimants, extending the corporation tax principle to UK permanent establishments of foreign companies (CIRD81200); it does not say whether a customer’s permanent establishment brings that customer within the charge for this purpose, so that is a reading of the statute rather than a settled position (cost-plus R&D for an overseas parent).

Can one contract produce two claims?

Yes, and it is an ordinary outcome rather than a weak one. R&D is contracted out only "to the extent that" the intention limb is satisfied in relation to it (CTA 2009 s1133(3)). One contract can split: the customer claims the part it contemplated, the contractor the rest on its own costs.

A payment relating only partly to contracted-out R&D is apportioned on a just and reasonable basis (s1133(7)), and the split is worth evidencing while the work is live. The point is not new: in Environmental Services, on the old scheme, a First-tier Tribunal declined to apportion qualifying expenditure on a just and reasonable basis to rescue a claim where nothing showed what the money had bought.

How much of a contractor payment enters the customer's claim?

65% of the relevant portion, where the two companies are unconnected. The relevant portion is the part of the payment incurred in respect of R&D undertaken in the UK, or overseas R&D within the narrow exception, and any apportionment is made on a just and reasonable basis (CTA 2009 s1136).

Where the parties are connected the measure changes: the qualifying element is the whole payment or, if lower, the contractor's own relevant expenditure (s1134), and transfer pricing does not displace that limit (CIRD192000). Unconnected parties can elect jointly into that treatment, irrevocably, within two years of the end of the accounting period in which the contract was made (s1135). What it is worth depends on the scheme and the year: see rates by year, and can I claim for subcontracted R&D? for how each side counts its costs.

Does a grant change who claims?

No, and for a current period it does not change the size of the claim either. The subsidised expenditure rules "were not carried forward into the new merged scheme" (merged scheme RDEC reform), so relief is worked out on the full qualifying expenditure whatever funded it. Who claims turns on who commissioned the work, not on who paid for it, and grant funding and R&D tax relief sets out the current position.

What is subsidised expenditure, and does it still apply?

Subsidised expenditure is R&D spending somebody else paid for. It was a restriction in the old SME scheme, abolished for periods beginning on or after 1 April 2024. For earlier periods it still decides claims, and it was always a separate question from who commissioned the work (CTA 2009 s1138 as it stood at 31 March 2024).

The three limbs did not work alike. A notified State aid obtained in respect of any expenditure attributable to the same research and development project took all of that project's expenditure out of the SME scheme, not only the funded part. A grant that was not a notified State aid, and expenditure "otherwise met directly or indirectly by a person other than the company", bit only to the extent of the money. Losing the SME scheme was not losing relief: those costs could go to the old expenditure credit where its conditions were met, as what subsidised expenditure means shows.

Our year ends are different. Does that matter?

It can decide the answer. The two parties' accounting periods need not fall on the same side of 1 April 2024. Finance Act 2024 makes transitional provision for that case, "to avoid overlap and gaps in entitlement" where one company's expenditure sits in a pre-April 2024 accounting period and the other's after it (CIRD165000).

The checker asks the question and flags it rather than answering it. Which side the rule favours turns on the other party's entitlement under the old rules, a question about their claim rather than yours. So ask them when their accounting period began, before either of you counts a cost.

Does it matter who owns the intellectual property?

Not as the test. HMRC treats who keeps the intellectual property as one of the surrounding circumstances that show what the customer intended, alongside financial risk and autonomy over the work (CIRD161000). It is evidence of intention, not the rule.

Under the old scheme it carried the least weight of HMRC's four factors, and more where the principal owns intellectual property the company cannot use than where the asset is know-how (CIRD84250). A group that treats the parent's ownership of the results as settling it has assumed something the legislation does not say.

What if our accounting period began before 1 April 2024?

Different rules, and two of them rather than one. The old SME scheme asked separately whether the expenditure was incurred on activities contracted out to the company by any person, and whether the expenditure was subsidised (CTA 2009 s1052 as it stood at 31 March 2024). A claim could fail on either, and clearing one settled nothing about the other.

On the first, HMRC weighs factors case by case: it says there are no tests, and lists them "in order of the weight likely to be attached to them" (CIRD84250). On the second, both halves of its position matter. Where the R&D activities are not contracted to the company, payments from the principal do not subsidise them unless specifically linked to those activities. Where they are contracted to the company, the expenditure may be subsidised to the extent the principal meets it (CIRD81650).

HMRC rewrote both pages in February 2025, after Collins Construction and Stage One Creative Services, two First-tier Tribunal decisions against which no onward appeal has been reported as at 21 September 2026. A decision of that tribunal binds only the parties to it. Quinn (London) is where the line starts, and the Upper Tribunal read "met directly or indirectly" the same way in Perenco, a petroleum revenue tax case on other legislation that is persuasive by analogy, not authority on section 1138.

Does this checker tell us whose claim it is?

No. It gives a first read on the answers you give, and says so at every verdict. The statutory test is decided on the terms of the contract and the surrounding circumstances, and the checker has read neither.

What it will do is reach a plain answer quickly, including "not you", and show the section or the manual paragraph behind every step. Settling who may claim settles nothing about whether there is anything to claim: in Tanglewood Care Services the claim failed on the advance and the competent professional, contracting out never reaching the point. Where the answer points elsewhere, talk it through with a chartered adviser.

Every CIRD paragraph cited on this page is indexed on our CIRD reference index, with HMRC's own title for each, a line on what it says and the date HMRC last revised it.