


Royce Industrial Collaboration Programme (ICP5)
26/03/2025The industry has been eagerly anticipating HMRC’s guidance on how they will handle subsidised research and development (R&D) and subcontracted R&D for both Collins Construction Limited (“Collins”) and Stage One Creative Services Limited. These cases have significant implications for businesses navigating subcontracted R&D rules. We’ve commented upon those cases in another article.
Tom Haslehurst, Senior Manager, R&D Technical, explores the key outcomes and their impact on claims below.
Collins Construction Limited: A Tax Tribunal Decision
The Tribunal determined that Collins' R&D activities were not subsidised by their clients, referencing the decision in Quinn (London) Ltd v HMRC. The Tribunal concluded that the R&D activities were intrinsic to Collins' own commercial endeavours and not performed on behalf of another person. This ruling provides clarity for small and medium-sized enterprises (SMEs), allowing them to claim R&D tax credits for internally driven innovations, even when these arise in client projects.
Stage One Creative Services Limited: Defining Subsidised R&D
The Tribunal found no direct link between the payments received from clients and the specific R&D expenditures, thus the expenditures were not deemed to be subsidised. The Tribunal determined that Stage One Creative Services Limited had autonomy over how it fulfilled its contractual obligations, meaning R&D was not explicitly required or funded by client payments.
How Has This Changed Things?
Subsidised R&D: Clearer Definitions
While their historical approach has varied in recent years, following the outcome in Quinn, HMRC modified their treatment of the complexities surrounding subsidised R&D through the introduction of new wording:
"Payment received for undertaking a contract will be considered to meet expenditure incurred in undertaking that contract."
This caused HMRC to consider any payment under a contract likely to meet R&D costs, ultimately treating most commercial transactions as subsidies.
However, the updated guidance aligns with Tribunal rulings, clarifying that standard business revenue is not considered subsidised R&D unless payments are explicitly intended to fund R&D. Like the ruling in the Quinn case, this emphasises that a payment must be directly linked to R&D to be considered a subsidy.
Subcontracted R&D: Flexibility in R&D Tax Claims
HMRC's earlier stance was more restrictive, often denying relief for R&D activities conducted under general commercial contracts. The new guidance reflects the new Tribunal decisions, which determined that R&D undertaken independently as part of delivering a contract does not constitute subcontracted work unless explicitly contemplated and paid for by the principal. This provides more flexibility for companies to claim R&D tax relief.
These changes, in our view, offer much clearer definitions and fairer assessments of what constitutes subsidised R&D and subcontracted R&D, helping businesses to better understand their eligibility to claim tax relief under the R&D merged scheme.
Where Are We Now and What Can We Expect?
The practical impact will depend on how readily, how quickly, and how fairly HMRC caseworkers implement this guidance. While past issues were sometimes slow to take effect, the high-profile nature of this issue suggests a more immediate shift.
For businesses navigating R&D tax credits subcontracting rules, this development offers a more logical and fair approach, reducing compliance burdens. Claimants currently in the compliance process may find the journey has shortened considerably.
For expert insights on what is meant by subcontracted R&D and how these changes could impact your claims, get in touch with our team today.
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