SME claiming RDEC subcontracted by a 501(c)(3)

Can an SME claim RDEC on R&D subcontracted by a 501(c)(3)

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My SME has received a grant from a US-based 501(c)(3) organization to perform R&D.

As this seems to be "R&D contracted to a SME", it is not possible to claim under the SME R&D Scheme. However, an SME can claim for subcontracted R&D under the RDEC scheme if the R&D is contracted to the SME by "a large company" or "any person otherwise than in the course of carrying on a chargeable trade. (A chargeable trade is a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2, of Part 2 of ITTOIA 2005, or chargeable to corporation tax under Chapter 2 of Part 3 of CTA 2009)" (from CIRD89750).

Could this apply if the company that subcontracted the work out to my SME is a US-based 501(c)(3)? What should I find out about the 501(c)(3) to work out if I can claim RDEC on the work it subcontracts out to me.

Replies (3)

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By WhichTyler
21st Mar 2020 03:36

Is a grant the same as a fee? Who keeps the benefits of the R&D?

Just asking because I don't usually associate grants with a subconrtract

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Replying to WhichTyler:
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By Ezeikel
21st Mar 2020 10:38

The R&D is more of a "public benefit". The 501(c)(3) is funding R&D that will benefit the members of its community.

However, the "grant" is only payable on receipt of specific, agreed-upon parts of the R&D.

I guess this is two separate questions:

- What if a US company subcontracts R&D to a UK SME?
- What if a US 501(c)(3) subcontracts R&D to a UK SME and the R&D is for the public benefit?

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By Ezeikel
21st Mar 2020 12:31

So, a major point is that the 501(c)(3) is calling this a "grant", but it is payment upon receipt of the R&D (so it is more like "payment"). However, the R&D is a public benefit - it benefits my SME, the 501(c)(3), and all their community members (everyone has access to the raw products of the R&D).

Does this mean I can claim under the SME scheme, or not? I presume not as this is either (1) a "subsidy", so still requires me to claim this amount under RDEC, or (2) subcontracted R&D, so it requires me to claim under RDEC.

Then, the question is if this is allowed under the RDEC scheme even though the "subsidy" provider/company that is subcontracting the work to my SME is in the US?

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