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Think of any complex project — whether it’s the building of a bridge or design of a smartphone — and it’s more than likely been the work of not just one but many businesses.

When multiple parties are involved in a complex project, we’re often asked ‘Whose R&D is it?’ Meaning, who can and who cannot claim the research and development (R&D) incentives? Let’s explore.

If you first need a bit more information before jumping into a complex scenario, our R&D tax credits explained webpage clarifies the incentive in simple terms and you should start there first.

Where does the R&D sit?

R&D tax credits are there to reward innovation and fuel business growth. Lots of people know that. But if you’ve ever wondered who the R&D belongs to, you wouldn’t be alone. For many decision-makers, it can be challenging to identify which party owns the R&D when a few businesses might think they have a potential claim.

Who should claim for a specific project when there are a number of associated companies involved? Why does it matter?

Why does it matter?

If there’s any confusion, it tends to put businesses off claiming R&D tax credits altogether. But those who wrongly assume they can’t claim could be missing out on a substantial reward that their work deserves.

The average SME R&D tax credit claim is £53,714. The average large company claim (under the RDEC scheme) is £315,789. This is obviously a lot of money, and it can even be a lot more. We have had SME clients with claims in the millions of pounds. For more R&D statistics, see our guide to HMRC R&D statistics 2019.

Typically, businesses use this money to grow their business further. They hire skilled new staff, get that key piece of software in place or they buy an important piece of plant. Crucial assets to support a company’s continued growth.

Whose R&D? — an acid test

For the purposes of R&D tax credits, who the R&D belongs to depends on four factors:

  1. FINANCIAL RISK — who is at risk financially?

    Determining exactly who is at risk of financial loss or sunk costs requires knowledge of the contract but should be apparent. It can be indicated by the basis on which fees are charged. This might be time and materials or a fixed fee arrangement. There may be instalments due at different milestones in the project. Essentially the party who carries the financial risk is the one who would have to pay if the R&D failed.

  2. AUTONOMY — who has autonomy over how the work is done?

    The owner of the R&D has the right to use any means necessary to complete the project aims. An indicator of a business owning the R&D is if has the ‘right to substitution’ i.e. it can change who it commissions to perform certain duties in the process. If the business has to attend compulsory meetings stipulated in the contract for them to be guided in the project, they’re probably working as a subcontractor. In principal, but not always in practice, the party that owns the R&D will often have the most sophisticated understanding of the R&D.

  3. INTELLECTUAL PROPERTY — who owns the IP at the end of the project?

    Think about the intellectual property (IP) and who owns it on creation. If it is assigned on creation, then it could be that the R&D is owned by the commissioner of the work rather than the party who undertook the work itself. If it is sold for a fee, it is likely to be the other way around. IP is a very complex area, however, and it can be difficult to separately identify IP created from the R&D.


    The final factor in understanding who owns the R&D is whether they are providing the end-product to be delivered or a service/specialised skill set towards it. The owner of the end product is more often the one who owns the R&D over someone who provided a service or specialised skill set towards that deliverable. More on this in our examples further down this article.

    The financial risk is usually HMRC’s main focus in determining who owns the R&D, but it is worth caveating this. Each case (and each commercial contract) is unique. The picture that emerges from answering these types of questions will determine who owns the R&D. That’s why it pays to use a specialist R&D tax credit adviser.

Examples of who can claim R&D tax credits

1. Construction


Another Level Ltd (company 1) is a design and build construction firm that specialises in high-end basements for its wealthy central London clients. The only real options for expansion are either loft or basement conversions. This company was commissioned by one such client to build a basement garage capable of housing a collection of classic cars. The subterranean structure needed to be stylish and secure; with the capacity to stack cars one atop the other. An additional bathroom was specified too.

First Another Level designed some concepts and the client commissioned one of them. Next Another Level called in GeoLogica Ltd (company 2), a geotechnical engineering firm. GeoLogica carried out a ground survey and made recommendations to Another Level about the suitability of the ground for the design, warranting that the project was safe to proceed.

Another Level then worked with their regular partner, Jones Associates Consulting Engineers (company 3). Together they researched, designed and planned the structural systems and processes needed to achieve the design goals. Another Level’s subcontractor then began work on the excavation. At the same time, Another Level identified the requirement for a number of other parties to work on the job and brought in each at the appropriate time to do their bit.

These were HVAC specialist AirFlo Ltd (company 4), electricians Bob Spark Ltd (company 5), plumbers SuperPlum Ltd (company 6) and then two specialists whose products combined to stack cars vertically. One was a car lift specialist, AutoLifts Ltd (company 7) and the other SuperStack Systems Ltd (company 8) a provider of hydraulic car stackers. Each were paid by Another Level according to their terms, in some cases, well before Another Level had handed over the completed work to its client.

multi-party construction R&D diagram
Who can make a claim?

In this example, despite there being eight companies involved, the only business that can claim R&D for this project is Another Level Ltd.


Despite the close involvement of Jones Associates, Another Level was the lead on the project, assuming the financial risk, owning the deliverables and holding the others to account through regular meetings. The intellectual property to the whole basement solution belongs to Another Level.

The activities of the other parties involved could be ‘routine’ (as per the official definition) in this instance. Or they may have carried out their own R&D separately e.g. SuperStack Systems may have developed their hydraulic car lift as an R&D project which SuperStack Systems would claim R&D tax credits for. The supply of the car lift itself would not be part of Another Level’s R&D project (they have simply purchased a product).

2. Software

Now let’s take software. Software is developed/built either:

A. To be used in-house

B. As a product to sell to a customer

C. On behalf of a client

Software R&D

For more information about software R&D, read our software R&D blog.

A - to be used in house


Smith Bros Ltd is a civil engineering firm. They had wanted greater visibility of their whole business for some time. The chief operations manager (CEO) heard about enterprise resource planning (ERP) tools.

Smith Bros’ CEO reviewed off-the-shelf solutions and decided they were too expensive. He had been building an in-house IT capability of two talented full-time developers for just this sort of thing. They had a meeting and decided they could build their own. Over the course of an eight-month project, the Smith Bros ERP tool was coded and created in-house for in-house use.

Who can claim?

Smith Bros was able to claim back the costs of the project as part of the R&D tax credit claim, including a percentage of the wages of the developers and the cost of electricity used (in the consumables cost category). It is important to note that the development work must be a software R&D project that satisfies the government definition of software R&D. Simply building a piece of software does not automatically make a project R&D.


As the company who developed the software, Smith Bros initiated the project, clearly owned the IP and are the ones at risk of sunk costs if it were to fail. In the event, it was a success. Although they would still have been able to claim back eligible costs if it had failed.

B — As a product to sell to a customer


Horizon Ltd is a software house. Their team of software developers create and sell software to businesses. One of their R&D projects was DigiLine, a software platform that allows manufacturing businesses to remote-monitor and control manufacturing production lines.

They designed and built the DigiLine software. Then they went to market by showcasing their product at a number of national exhibitions. At one of these exhibitions, a manufacturer of smart lawnmowers —Lawn Buddy Ltd — became their first customer.

Lawn Buddy watched a demo and were so impressed that they decided to buy DigiLine as an off-the-shelf piece of software. Lawn Buddy became a big advocate, reporting that DigiLine has made their factory 40% more efficient by preventing downtime.

Who can claim?

In this example, Horizon are the ones who can claim. If they had not made a sale at the national manufacturing expo — or anywhere else — they would not have recouped any money on their product development expenditure. Lawn Buddy cannot claim for the cost of purchasing the software, unless they use it for their own R&D.


The R&D sits with the software developer Horizon because they initiated the R&D at their own financial risk. They also owned the intellectual property installed and integrated it on all of Lawn Buddy’s factory lines.

sme subcontracted r&d

C — On behalf of a client


Digital agency ScaryBrains Ltd was engaged by Insurance Corporation Plc to build a bespoke software platform to manage and dynamically update insurance policies. These were required to remain compliant with both GDPR and FCA regulations as dynamic changes were made to the data. The arrangement was a fixed-fee with milestone payments. Monthly project management reports were sent to Insurance Corp’s UK board to report on progress. There was no detailed specification for the software, just a list of requirements. The sign-off/approvals process allowed Insurance Corporation to test and approve modules before payment.

Who can claim?

In this example, ScaryBrains are likely to be the ones who can claim.


Although the software is developed specifically for Insurance Corp ScaryBrains have been engaged to deliver a product for a fixed fee. They carry the risk of the research and development.


ScaryBrains are engaged to do the same job by InsuranceCorp but on a time and materials fee basis. ScaryBrains submits timesheets to InsuranceCorp to support each milestone payment claimed.

InsuranceCorp’s Head of IT project-manages the work and has prepared a detailed technical specification for the work. There is an estimated budget for the work, but no fixed or capped fee.

Who can claim?

If InsuranceCorp is a large company, ScaryBrains claims under RDEC. If InsuranceCorp is an SME, they claim under the SME R&D tax incentive.


In this scenario, the R&D has been subcontracted (contract for services) from InsuranceCorp to ScaryBrains. SMEs can include subcontractor costs, but large companies generally cannot. If a large company subcontracts R&D to an SME, that SME claims under RDEC.

large company subcontracting and R&D

In this scenario, ScaryBrains was engaged by InsuranceCorp to deliver the same software platform but in this instance the agreement was a contract for labour. ScaryBrains put a named team on-site at InsuranceCorp, charging an hourly rate from an agreed rate card attributable to each human resource supplied, some of whom they hired in from developer agency Softbears.

Who can claim?

In this scenario, Insurance Corp includes the costs as EPWs, whether it is large or small.


EPW costs are eligible under both SME R&D tax credits and RDEC. ScaryBrains is a staff provider and has therefore not carried out the R&D.

software R&D illustrated scenarios

3. Academic spin out

In our final example, we look at situations where a group of companies work collaboratively on an R&D project.

The University of Innovation created a new solar photovoltaic panel that was more efficient due to its innovative use of graphene. Seeing commercial viability in this, it applied for grant funding from Horizon 2020 to take it to market.

A condition of the funding was that a market leader and a nominated SME must have been included in the consortium. Energy Corporation Plc were selected by the university as a large company partner. Their experience of electricity production infrastructure made them a suitable candidate. It was their responsibility to facilitate grid connection via the adaptation of existing converters.

The university and Energy Corps then tendered for, and chose, an SME partner for the project. Bulldog Solar were selected as the nominated lead SME. It was their responsibility to build the solar park including bespoke new steel framing systems for a new size of panel. There was no contracting between the companies, and each would incur its own costs towards the project.

The university cannot claim R&D incentives as only companies are eligible. The intellectual property passed, under a licensing agreement, to the commercial entities. Energy Corps claimed RDEC tax incentives for their role in developing the infrastructure components. Bulldog also claimed R&D tax credits for their part in the project. Although Bulldog were an SME, any expenditure funded by the H2020 grant was claimed under the RDEC incentive, with the balance eligible for SME R&D tax credits.

academic spin out

Finding R&D in complex projects

With the examples above, you should hopefully have a better understanding of who owns the R&D and can claim across a range of scenarios. That said, we know it can get complex. As previously mentioned, each case (and each commercial contract) is unique. At ForrestBrown, we are experienced at unravelling even the most complex projects. This incentive is what we do, day in day out.

This article was last updated on 6 May 2020.

Help with R&D tax credits

If you’re in any doubt about where the R&D sits for tax credit purposes, get in touch with one of our friendly experts. If you’re an accountant, you have more than enough practising knowledge to keep up to date without being expected to know the intricacies of R&D tax credits. ForrestBrown is the UK’s largest specialist R&D tax credit consultancy. If in any doubt, call us.