Inside IR35 and R&D

[WordIsBond]

I'm running a small contract with a former employer on a retainer basis. Because it is a former employer, I operate it inside IR35 (though I could probably make a case for outside by now). I have multiple other contracts that are outside.

I'm doing a project for them now that would definitely qualify for RDEC (not SME R&D as it is subcontracted to me).

Does anyone know if RDEC can be used within an IR35 contract? And if so....

Qualifying costs for R&D are (as a general rule) costs paid for salary, NI, and pension contributions for the contractor. We've gone through Advanced Assurance for another project and HMRC has told me to do it on a pro-rata basis for total costs for the year and total hours worked on R&D (for the employee working on that project). But my costs (salary/pension) are mostly attributed (for IR35 purposes) to this particular contract. So, if I can use RDEC for this project, can I calculate qualifying costs pro rata based on the hours worked and costs attributed to this contract (since it is the one that has all the R&D), or do I have to do it as pro rata of all my hours for the year?

I've not found anything that talks about this, and my accountant actually said he didn't know and would have to get back to me. So I thought I'd see if anyone here has any knowledge of it.

[malvolio]

|HMRC may disagree, but I think you have a strong case ffor moving the contract to an outside IR35 status - if only because speculative development (as R&D is, in essence) does not really fit with D&C since the outcome is not known (else why do it...).

[northernladuk]

I'd be tempted to consider the project as outside to make it much simpler. The question would support that decision and the whole post sounds like outside even if we haven't seen the pillars. Just the engagement style sounds pretty solid.

[jamesbrown]

Agree with the other posters. Probably outside. Doing work for a former employer is circumstantial and Friday-Monday was always about the press release/sale of IR35, rather than the reality of the legislation and case law, the latter of which focuses on WP in forming the hypothetical contract.

[GhostofTarbera]

Outside all day long, if you have multiple contracts with different companies - what makes you think you are inside ? Just because you used to work there ?


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[malvolio]

Outside all day long, if you have multiple contracts with different companies - what makes you think you are inside ? Just because you used to work there ?


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"IR35 is on a contract by contract basis", as you well know, so other gigs may indicate IBOYA but HMRC won't take any notice of that (they haven't in the past). And it rather depends on what he used to do there - if it was ad hoc dev projects then he may well still be caught. However, this particular exercise certainly looks to be outside.

[TheCyclingProgrammer]

I agree with the others - whilst contracting for a former employer (especially a very recent former employer) can be a big red flag for IR35 and is generally something that should be approached with caution (especially for newbies), it doesn't mean it *is* inside IR35. You aren't a newbie, you know what you're doing, I understand why you've taken a cautious approach re: IR35 but I think you'd be better off making sure the contract and working practices are in check and operating it outside IR35 if you can.

[WordIsBond]

Thanks to everyone for answering the question I didn't ask.

The contract was literally Friday/Monday. However, the main reason it is inside is because it is, in fact, under SDC (as far as what jobs I do, they can move me from job to job, within the retainer limitations, obviously) and no substitution. There are other factors that would help my case for being outside (including multiple concurrent clients and other factors), but it's not exactly safe. And FWIW, being inside on this contract costs me nothing.

The fact that they happen to have moved me, under this contract, to a small R&D project does not, in and of itself, put this outside, I would not think. Employees work on R&D, no reason a 'disguised employee' can't.

edit: And yes, I understand why everyone thought it should be outside, based only on what I said in the OP. I should have been more specific there and saved you all the trouble.

[Maslins]

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.

[jamesbrown]

Thanks to everyone for answering the question I didn't ask.

The contract was literally Friday/Monday. However, the main reason it is inside is because it is, in fact, under SDC (as far as what jobs I do, they can move me from job to job, within the retainer limitations, obviously) and no substitution. There are other factors that would help my case for being outside (including multiple concurrent clients and other factors), but it's not exactly safe. And FWIW, being inside on this contract costs me nothing.

The fact that they happen to have moved me, under this contract, to a small R&D project does not, in and of itself, put this outside, I would not think. Employees work on R&D, no reason a 'disguised employee' can't.

edit: And yes, I understand why everyone thought it should be outside, based only on what I said in the OP. I should have been more specific there and saved you all the trouble.

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

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).

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