Quick answer: Externally provided workers (EPWs) are agency or staff-provider personnel whose time on qualifying R&D work can be included in a claim. Only 65% of the payment to the provider is eligible, reflecting the provider’s margin, unless the company and provider are connected, in which case the full cost may qualify subject to an election.
What are externally provided workers (EPWs)?
Externally provided workers, abbreviated EPWs, are individuals whose services are provided to a company under the terms of a contract between the company and a staff provider. Their time on qualifying R&D work is a category of qualifying expenditure. Only 65% of the payment to the provider is eligible, on the basis that the balance represents the provider's margin. Where the company and the staff provider are connected parties, the full cost to the provider may be claimable subject to an election.
How does HMRC define EPWs?
HMRC guidance on EPWs is at CIRD84000 onwards of the CIRD Manual. The legislation is at section 1127 of the Corporation Tax Act 2009 for the 65% rule and at sections 1129 to 1131 for connected-party elections. From 1 April 2024 the merged scheme introduced UK-workforce conditions for EPWs, requiring the worker's earnings to be subject to PAYE and NIC in most cases.
What does an EPW claim look like in practice?
An engineering company pays a specialist contractor agency £100,000 for the time of a structural engineer who spends 80% of her time on a qualifying R&D project. The EPW qualifying cost is 65% of £80,000, which equals £52,000, assuming the UK workforce conditions are met. Use the free eligibility calculator to see how EPW costs might affect your overall claim value.
Related terms
- Subcontractor R&D (UK Rule)
- Staff Costs (R&D)
- Qualifying Expenditure
- Externally Provided Workers and R&D Tax Credits: The Complete Guide
Frequently asked questions
Externally provided workers, or EPWs, are individuals whose services are supplied to a company under a contract with a staff provider, such as an agency. Their time spent on qualifying R&D work is a category of qualifying expenditure in an R&D tax relief claim.
Only 65% of the amount paid to the staff provider is eligible as qualifying expenditure, on the basis that the remaining 35% represents the provider’s margin. Where the company and the provider are connected parties, the full cost to the provider may be claimable instead, subject to an election.
From 1 April 2024 the merged scheme introduced UK-workforce conditions for EPWs, requiring the worker’s earnings to be subject to PAYE and NIC in most cases, which generally means the worker needs to be UK-based.