Talk to us
0333 006 6981

What the 2025 subcontractor changes mean for your R&D tax relief claim

From April 2024, the UK introduced a new, merged R&D tax relief scheme that replaced the SME and RDEC systems with a single framework. While this simplified some areas, it also introduced stricter rules around subcontractor costs - rules that are now firmly in place for 2025.

If your business relies on external providers for R&D work, understanding these changes is essential. They will shape how you plan projects, draft contracts, and report your claims.

Why subcontracting matters

Many businesses depend on subcontractors for specialist expertise -whether that’s software developers, engineers, or product designers. Under the old system, SMEs and large companies were treated differently when claiming relief on subcontracted R&D.

Now, all businesses are subject to the same rules. That creates consistency, but it also raises the bar on evidence, control, and where the work is carried out.

Key changes for 2025

1. Unified subcontractor treatment
  • Relief is only available where subcontracted work directly supports your company’s own R&D project.
  • You must show that your business retained ownership and bore the risk of the work.

Clear agreements are now critical to protect eligibility.

2. Stricter limits on overseas work

Most subcontracted R&D must now be carried out in the UK. Relief for overseas work is only possible in very limited circumstances, such as when legal or geographical barriers make UK delivery impossible.
This shift is designed to bring more R&D activity back onshore.

3. More rigorous documentation

HMRC will expect you to demonstrate:

  • The subcontractor was working on a qualifying R&D project.
  • The activity was necessary and clearly defined.
  • Your business directed the project and carried the risk.

Payment alone isn’t enough - you need to show control and technical oversight.

What this means in practice

If you outsource part of your technical development, you may need to:

  • Update contracts to show ownership and control of R&D activity.
  • Reconsider overseas subcontracting in favour of UK-based partners.
  • Improve record-keeping, including project milestones, technical decisions, and deliverables.

Failing to adapt could see costs disallowed or claims delayed.

HMRC’s expectations

For 2025 and beyond, HMRC expects claimants to:

  • Link subcontracted work directly to internal R&D objectives.
  • Keep detailed records of technical progress, not just invoices.
  • Avoid generic service contracts that don’t capture the nature of the R&D.

This isn’t about more paperwork for the sake of it - it’s about showing subcontractors were part of a genuine R&D process.

Moving forward with confidence

The new rules may feel tougher, but they also provide clarity. With the right planning, you can adapt your subcontractor relationships, strengthen your claims, and continue to benefit from valuable R&D relief.

If your business depends on external expertise, now is the time to review your approach.

Drop our team a line on 0333 006 6981 or send us a message here to make sure your next R&D claim is structured for success.