When claiming R&D tax relief, you may have wondered what is an externally provided worker (EPW) and how these EPWs affect your R&D tax claim.
What are EPWs in relation to R&D tax relief?
In the R&D tax world, an EPWs is:
- The person is an individual and is not a director or employee of the claimant company.
- The person provides or is under the obligation personally to provide services to the claimant company.
- The services provided by the individual are subject to supervision, direction or control by the claimant company.
- The services of the EPW are supplied to the claimant company by or through the staff provider or staff controller.
- The provided services to the claimant company are under terms of a contract between the individual and staff provider.
A staff provider is typically a staffing agency but it could be a personal service company (where a contractor works via their own company) or a connected company where one company provides staff to another company.
How EPWs affect an R&D tax claim
SME Scheme
Under the SME scheme for unconnected companies, 65% of the EPW costs can be treated as qualifying R&D expenditure. This 65% is then restricted to the qualifying activity undertaken by the EPWs.
The rules are different if you and the staff provider are connected.
The 65% cap is removed and the claimant company can claim R&D tax credits on the lower of either
- cost of labour to the staff provider
- the payment made to the EPW provider.
RDEC Scheme
There is no difference between SME and RDEC when claiming EPW costs.
The 65% cap still applies to unconnected companies.
Difference between subcontractor and EPWs
The main difference between a subcontractor and EPW is that a subcontractor provides a service direct to the claimant company in exchange for payment and an EPW provides labour through a staff provider and is paid by the staff provider.
