Where an SME subcontracts R&D work to a third party the SME may claim relief. The amount of relief will depend on whether the payment is to a connected company. If the payment is to a connected company, then the SME can claim R&D relief on the lower of the payment it makes to the subcontractor and the relevant expenditure of the subcontractor.
Where the payment is made to an unconnected party, then 65% of the payment made by the SME qualifies for relief. However, the parties may put an election in place for the connected company treatment to apply.
For large companies the expenditure incurred on R&D subcontracted to other persons is generally not allowable unless the company contracts for the work to be undertaken by qualifying bodies such as universities, scientific research organisations, charities, and NHS bodies, an individual or a partnership of which each member is an individual.
Large companies can also claim relief for expenditure on work contracted to it provided the work is contracted by another large company.
If a large company subcontracts work to an SME, then no relief can be claimed by the large company. Instead the SME will claim the relief at 130% for expenditure on the work contracted to it.