Inside IR35 and R&D

[northernladuk]

Apologies if this post is a load of crap but the R&D aspect always makes my head spin..

So.. you are inside because you are being paid a daily rate for doing work for the client yes? If you were doing R&D at your cost then you can't be inside so I'm assuming the former is true.

If that is the case are you not just doing your day job, providing services to a client? It's the client project that is R&D so it's the client that should be benefiting from RDEC credits? If the incentive of the credit is to try incentivise companies to carry out R&D due to the it tending to be a loss making activity it doesn't makes sense for you to claim it when you are just doing your day job?

What have I completely missed here?

[WordIsBond]

If we're accepting as gospel that this work is inside IR35, then my personal view is it wouldn't seem right for YourCo to attempt to claim R&D.

Setting aside webberg's arguments that treating you as an employee for tax purposes doesn't mean you're an employee for other purposes, then if you/they are agreed it's inside IR35, you/they are considering you effectively an employee, not running your own business.

If you're an employee, then the client may well be able to claim some R&D relief based on amounts it pays to you, but I don't see the justification for YourCo doing so.

Thank you. This fit my thinking originally as well. However, the client will be claiming for RDEC but does not intend to claim for payments made to me for my part in this project. They do not believe they can claim RDEC for my costs, as a subcontractor.

Subcontracted expenditure cannot be claimed unless it is directly undertaken by:

a charity
a higher education institute
a scientific research organisation
a health service body
an individual or partnership of individuals

Does that affect your thinking?

[WordIsBond]

That's because none of us know the answer to your real question

That possibility did cross my mind when I said that.

Since RDEC is CT relief (right?), I assume you would be claiming cash, right? Is that allowed? I mean, there won't be any CT on the inside-IR35 work, notwithstanding a small amount on the portion of the 5% not expensed (IIRC).

It seems you total the RDEC from all projects and treat it as a whole relative to your CT, rather than on a contract-by-contract basis, as described in the link above in my response to Maslins. By great good fortune, I do have other contracts on which a considerable sum of CT falls due every year, so there's plenty of tax to offset.

Anyway, best addressed to your accountant and, if not them, to a better accountant

Poor Maslins. Since he's giving an opinion that hardly comes across with great certitude, it's a good thing he's not my accountant or you'd have just told me to fire him. But at least he raised his head above the parapet!

It's just possible no one inside IR35 has ever claimed RDEC before? Most permietractors probably never heard of RDEC. I suppose, if I can't claim it whilst inside, I just might be convinced it is worth the risk to treat it as outside and claim the R&D nature of the work is different.

[WordIsBond]

If that is the case are you not just doing your day job, providing services to a client? It's the client project that is R&D so it's the client that should be benefiting from RDEC credits? If the incentive of the credit is to try incentivise companies to carry out R&D due to the it tending to be a loss making activity it doesn't makes sense for you to claim it when you are just doing your day job?

This is a reasonable take except as I just noted above, the client isn't claiming for what they pay me on this because they view me as a subcontractor and thus my costs to them aren't eligible. They actually recommended I claim since they can't!

[northernladuk]

This is a reasonable take except as I just noted above, the client isn't claiming for what they pay me on this because they view me as a subcontractor and thus my costs to them aren't eligible. They actually recommended I claim since they can't!

Just because they aren't doesn't mean you can surely? That doesn't make sense.

[Lance]

Inside IR35 and R&D

Thank you. This fit my thinking originally as well. However, the client will be claiming for RDEC but does not intend to claim for payments made to me for my part in this project. They do not believe they can claim RDEC for my costs, as a subcontractor.


Does that affect your thinking?

I think you’re assuming that the definition of subcontract, as as R&D goes is the same as a contractor. It would be if you’re outside.

As you’re inside IR35 it’s probably a grey area. You’re not an employee just because you’re inside.
If you were declaring yourself outside but failed the self-employed case in court you would be classed as an employee. But that’s not what you’ve done. I ain’t no lawyer but I think that assuming the law works equally in both ways may not be true.
And being found inside in court doesn’t make you an actual employee either.

I think your client should seek some advice from an R&D tax specialist..... or just claim it anyway and lose the fact it’s your invoice (if possible).

My understanding of R&D tax is that unless client takes the piss they’ll be fine. I don’t think they would be (taking the piss).
If you really want to help why not just ask them to put you on the payroll for this project?

Edit: sorry I rambled a bit.

[WordIsBond]

Just because they aren't doesn't mean you can surely? That doesn't make sense.

If I'm a subcontractor I can. Did you read the link I provided?

Payments to subcontractors can't be claimed for RDEC by the client, but subcontractors doing R&D for a client can claim for RDEC.

I guess the question comes down to this: If I'm an employee for personal tax purposes, but not an employee for employment rights, am I an employee for corporation tax purposes or not?

The client says I'm not an employee for any purposes (they don't want to give me employment rights, after all), and IR35 and personal tax matters are nothing to do with them. Therefore as far as they are concerned I'm a subcontractor.

[WordIsBond]

If you really want to help why not just ask them to put you on the payroll for this project?

Are you out of your mind???

[Lance]

I guess the question comes down to this: If I'm an employee for personal tax purposes, but not an employee for employment rights, am I an employee for corporation tax purposes or not?

Do you pay CT on your IR35 earnings? I don't think so (never been there).
If not then you're unlikely to qualify for R&D credits.

In another crazy suggestion, have you thought abour ringing HMRC and asking them? Although I suspect they'll say yes if you just say you're a subbie, no if you just say you're insode IR35, and their head will explode if you say you're both.

[ContrataxLtd]

RDEC is quite a specialist area so it may be worth paying for a little bit of professional advice on this as depending on the project size there could be a reasonable amount to claim back here.

My view is that IR35 is irrelevant to RDEC as all IR35 basically does is determine how you have to remunerate yourself based on the income from a specific project. RDEC is all about looking at the actual work that is being done and whether it meets certain criteria for a claim. If it does you look at the costs associated with the work and claim some additional tax relief, either by offsetting a greater expense against your profits for corporation tax or claiming a cash rebate if you don't have any corporation tax.

HTH

Martin
Contratax Ltd