Can an LLP claim R&D tax relief?

No, an LLP cannot directly apply for R&D tax credits. An LLP is not subject to UK Corporation tax and therefore would not be eligible. However, there are two related exceptions worth discussing:

1. Where one or more members of an LLP is a limited company
2. Where an LLP conducts R&D in partnership with a limited company

Where the LLP consists of one or more limited company partners then those individual companies can apply for the corporation tax deduction on the R&D that has taken place in the LLP.

In order to do this, the company should calculate its profits from the LLP, and its corresponding Corporation Tax calculation (including the R&D enhanced deduction). The relief will then be applied on their contribution to the R&D within the partnership and a deduction will be applied.

However it is important to note, that only the Corporation Tax deduction is available in this scenario and not the payable credit. Additionally, if the limited company is in an LLP with a non-company such as an individual, then those non-company partners will not get any relief.

So if an LLP with a company partner and a natural person partner at 50-50 share had qualifying expenditure of £100K the company partner would get an additional £65K deduction whereas the natural partner would get nothing.

If the LLP had two company partners at 50-50 share then they would get £65K each. However in none of those cases would they receive a payable credit. The only exception is if an LLP enters into a partnership with a limited company. In that case, they will be able to claim a portion of the R&D tax credit relative to their involvement in the R&D project.

In this instance the limited company can apply for the R&D tax credit on the R&D they have undertaken in the partnership. Their relief can be awarded either as a credit or as a deductible.

In some cases, the relief may be divided up between the limited company and the LLP dependant entirely on the contractual arrangement between the two parties. There is no statutory need for the limited company to share the relief, and the LLP cannot apply for the relief on its own. However, we have seen individual arrangements where the LLP shares in the relief, so this may be something to consider when relevant to your own circumstances.

In all these cases, the R&D calculation becomes tricky as it is subject to the rules on groups and partnerships that HMRC outlines in the intangibles manual. We recommend employing a specialist when applying as a constituent part of an LLP, or as a limited company in partnership with an LLP.

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