R&D Tax Relief Outside the UK
Some 90% of small and medium sized enterprises (SMEs) in the UK are unaware that they may be eligible to claim research and development tax relief for any applicable projects funded by their business. Even fewer businesses are aware that the R&D activity doesn’t always have to take place in the UK for it qualify for this tax relief.
It may seem surprising, but given that R&D tax relief is a reduction in UK corporation tax, as long as your UK business is subject to corporation tax a claim can be made. In other words, the global profits of the UK company that are subject to corporation tax can be reduced by an R&D tax relief claim. It follows, therefore, that any qualifying costs borne by R&D work outside of the UK should also be subject to R&D tax relief.
Sub-contracting
The use of sub-contractors outside the UK need not affect your claim for tax relief. As long as the sub-contractor is engaged on a specific part of the R&D work, they can be based anywhere is the world. Large companies using a ‘qualifying body’ which has been pre-approved by HMRC can also claim relief, but the eligibility criteria and amount that can be claimed are subject to a range of conditions, such as the relationship between the contractor and sub-contractor.
Due to the complexities of claiming for relief on overseas projects, it’s necessary to be thorough and accurate during the claim process. It can be easy to under-claim or over-claim, which can in turn open the business up to unwanted scrutiny from HMRC. For this reason, we recommend working with experienced tax relief experts to ensure the claim is put together correctly.
Key points regarding R&D claims for overseas projects:
- If you have staff on your payroll that are based overseas and were involved in R&D work, you will be able to claim relief on the gross salary costs for the R&D work done.
- If you are conducting research in-house and with an overseas entity, you will be able to claim on the basis of collaborative research. In such cases, the expenditure of each company will be evaluated, with claims made based on the qualifying expenditure.
- Externally provided workers – i.e. paying another company for their staff’s time – does not count as subcontracted R&D, but instead can be included in a claim towards direct expenditure. The same restrictions as if they were subcontracted workers would still apply.
Find out more with R&D Tax Solutions
If you’re looking to make a claim for overseas R&D tax relief, or simply wish to understand the complexities around it, contact the team at R&D Tax Solutions in Manchester today. Simply submit an enquiry or call now on 0161 298 1010.