An FI Group UK Guide: Externally Provided Workers in R&D Claims
Externally Provided Workers in R&D claims are seen as the temporary staff supplied by third-party agencies. This guide covers the key aspects of EPWs, including their definition, restrictions, and how to calculate R&D tax relief for their services.
What Are Externally Provided Workers in R&D Claims?
EPWs are individuals who provide services to a company but are not its employees or directors. They are typically supplied by a staff provider, such as a temp agency. To qualify as an EPW, the individual must:
- Be an individual (not a company).
- Not be a director or employee of the company.
- Personally provide, or be obligated to provide, services to the company.
- Be subject to the company’s supervision, direction, or control regarding how the services are provided.
- Have their services supplied through a staff provider or controller.
- Not be involved in activities contracted out by the company.
Key Characteristics of EPWs in R&D Claims
EPWs are distinct from regular employees and contractors due to their temporary nature and the involvement of a third-party provider. This arrangement allows companies to flexibly manage their workforce without the long-term commitments associated with direct employment.
Restrictions on EPWs
From 1 April 2024, expenditure on overseas EPWs does not qualify for R&D tax relief schemes. This change aims to encourage the use of local talent and resources. Companies must ensure that their EPWs are based within the country to benefit from these tax reliefs.
Impact of Restrictions
This restriction can significantly impact companies that rely heavily on international talent. Businesses must adapt their hiring strategies to comply with the new regulations, potentially increasing the demand for local EPWs.
Connected vs. Unconnected Externally Provided Workers in R&D Claims
Unconnected EPWs
If the staff provider is not connected to the claimant company, only 65% of the expenditure paid to the staff provider can be treated as qualifying expenditure. For example, if £100,000 is paid to a staff provider, only £65,000 can be considered for the R&D calculation.
Connected EPWs
If the staff provider is connected to the claimant company, the company may claim the lower of the qualifying payment for staff made to the staff provider or the actual cost of the relevant staff incurred by the staff provider.
Examples of Connected and Unconnected Providers
Understanding the difference between connected and unconnected providers is crucial for accurate R&D tax relief claims. Connected providers might include subsidiaries or companies with shared ownership, while unconnected providers operate independently.
Calculating R&D Apportionments for Externally Provided Workers in R&D Claims
EPWs are considered temporary staff. Therefore, the methodologies detailed in the Staffing Costs section of the R&D tax relief guide can be used to calculate R&D costs for EPWs. This includes apportioning costs based on the time spent on R&D activities.
Detailed Calculation Methods
To accurately calculate R&D apportionments, companies should maintain detailed records of EPW activities. This includes timesheets, project reports, and any other documentation that can substantiate the time and effort spent on R&D projects.
Information Needed for Claims
When making a claim, the following financial reports are required to analyse expenditure on a transactional level:
- Detailed Profit and Loss (P&L) Statement: A summary of expenditure incurred for the period.
- General Ledger: Details of the expenditure incurred, including invoice date, account, description, and cost.
- Copies of invoices may also be requested where needed.
Importance of Accurate Documentation
Accurate and thorough documentation is essential for successful R&D tax relief claims. Companies should ensure that all financial records are up-to-date and accurately reflect the costs associated with EPWs.
Conclusion
Understanding the intricacies of Externally Provided Workers in R&D claims is crucial for companies looking to maximise their R&D tax relief claims. By ensuring compliance with the latest regulations and accurately calculating qualifying expenditures, businesses can effectively manage their temporary staffing costs.
To view other costs that qualify for R&D expenditure click here.