Personnel costs are often the largest cost related to your R&D tax relief claim, and they fall within 3 categories of expenditure:
In this article, we will cover the key aspects of EPWs, including their definition, restrictions, and how we calculate R&D tax relief in relation to these costs.
EPWs are an integral part in your commercial and R&D needs; they are seen as a temporary extension to your internal staff and are supplied by third-party agencies.
EPWs are distinct from regular employees and contractors due to their temporary nature and the involvement of a third-party provider. This allows companies to flexibly manage their workforce without the long-term commitments associated with direct employment.
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 staff agency. To qualify as an EPW, 7 conditions must be met:
A person is an externally provided worker in relation to the claimant company if the following conditions are satisfied:
From 1 April 2024, expenditure on overseas EPWs does not qualify for R&D tax relief. This change aims to encourage the use of local talent and resources.
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, this accounts for any profit margin included in the cost. By way of an example, if £100,000 is paid to a staff provider, only £65,000 can be considered when calculating your R&D claim.
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 eligible cost of the relevant staff incurred by the staff provider. An example of a connected EPW provider is a subsidiary company.
Understanding the difference between connected and unconnected providers is vital to ensure accurate R&D claims.
Understanding the conditions and eligibility for EPW costs is vital if you want to maximise your R&D tax relief claim in a robust and compliant manner.
