Guidance on research and development – contracted out

In the first article of my review of HMRC’s draft research and development (R&D) guidance published in early February (tinyurl.com/hmrcdraftguidfeb24) I focused on the overseas element. In this second part I examine the draft guidance on contracted out R&D and what this means in practical terms for businesses and advisers.

Clarity – to an extent

An area which has led to uncertainty and controversy for SMEs in recent years has been determining whether R&D has been contracted between parties. This affects which entity can make a claim for relief and under what scheme.

Although not directly dealing with this point it was relevant in the Quinn First-tier Tribunal case (TC8321) which dealt with customer projects and where HMRC argued unsuccessfully that customers had subsidised R&D costs. HMRC later stated that part of the reason it chose not to appeal its loss in that case was...