A comprehensive guide for R&D tech firms: Optimising your R&D strategy

Receiving external expertise

When you can’t find the right staff for your business, engaging a subcontractor could be the right approach. Bringing in an experienced developer or specialist on a short-term contract could kick-start the development. This individual’s costs could be claimable within your R&D claim, however, you will only be able to pick up 65% of their costs. If this individual remains at the business for an extended period, the company must consider IR35 implications and whether you have created a disguised employment contract.

Alternatively, when it comes to subcontracting, there is the option to pass elements of the development to a third-party company in the UK or overseas. We are seeing companies using teams in the former Eastern Europe or India where they have invested in up-skilling their workforce to undertake software development activities. Another additional positive is that labour costs are lower. 

In the past, these overseas costs would have been claimable but after 1 April 2024, the UK R&D scheme changes to become UK-focused. Going forward, companies are going to have to juggle the benefits of employing staff in the UK and continuing to claim under the UK R&D tax credits scheme, against making claims overseas for non-UK based resources. This means R&D incentives will become more fragmented and tech businesses will need support to navigate the vagaries and complexities of national R&D incentives. 

R&D strategy planning

Most tech businesses want to employ the best talent irrespective of where these resources are based. Virtual collaboration tools have enabled dispersed teams to operate effectively, and this is becoming the normal way of working. But this decentralised operation causes headaches for the finance team who must work with an increasing number of national tax agencies. 

This is where strategic planning comes in. Being ahead of issues or restrictions can avoid costly mistakes. Understanding the incentives in potential operational locations can identify savings or cash benefits that can support the overall R&D project. 

Most countries have R&D tax credit schemes that support the employment of local staff. But to claim, the work undertaken by an overseas team may need to be exploitation of the IP or to be undertaking a specific type of development. Therefore, it’s not possible to extend the requirements that you’re familiar with for the UK scheme to overseas incentives and this is where there is a need for modelling and contract analysis to understand what support might be available. Additionally, this analysis cannot be undertaken without considering transfer pricing, local taxes, IP ownership etc. Our dedicated R&D team can help you plan and implement an R&D strategy taking into account all of these interacting, and potentially conflicting, requirements.

Investing in your business’s future

If the UK is to continue to develop its vast technology market and become the innovative economy that it so desires, our tech companies need to be able to take advantage of the funding and incentives available. Having a clear understanding of what elements support your business’s R&D, from the right talent to a clear understanding of the ever-changing R&D scheme, will be key. Legislations and HMRC processes are changing therefore, businesses need to be certain the work they’re claiming fits with the guidelines and that the claim accurately translates the eligible projects into qualifying costs. 

Speak to an expert

Ultimately, tech businesses that are able to understand and utilise R&D tax credits as part of the overarching business strategy, will ensure that they underpin, rather than undermine, growth. For more information or advice tailored to your business, please get in touch via the form below.