Conducting R&D Activities Abroad
Companies that practise R&D work will know that they’re able to take advantage of some pretty generous tax reliefs within the UK. Often amounts up to £26 (and sometimes as high as £33) worth of additional tax relief is available for every £100 a company spends on R&D projects. These reliefs are well known and have made the UK a pretty attractive place for R&D work, but what some companies may not know is that their work doesn’t have to take place within the UK for the tax relief to be available to them.
Firstly, it’s worth stating the obvious: R&D tax relief works as a reduction in UK corporation tax. That means that, in order to qualify for the relief, the company must already be paying UK corporation tax. With R&D tax relief being based on the actual activities being undertaken, as well as the amount being spent on R&D, the actual location of the R&D activity doesn’t affect the eligibility of a company when it comes to claiming tax relief.
If your company is paying UK corporation tax as well as working on an R&D project that qualifies for tax relief, then you may end up incurring some qualifying costs that are linked to overseas activities.
The most obvious one of these is sub-contracted R&D. A lot of companies use sub-contractors to carry out important R&D work. The claimant just needs to make sure that the sub-contractor is working on a specific part of the R&D work. If this is the case, then it doesn’t matter where the sub-contractor is based. The work doesn’t have to be undertaken within the UK and can be done anywhere in the world. If it’s a large company sub-contracting the overseas work, then there is no relief available, unless the work is given to either an individual or what is called a ‘qualifying body’. When it comes to determining a qualifying body, what is most important is that the body has to have pre-approval from HMRC. They can be based overseas but the amount a company can claim against sub-contracting costs depends on whether or not the contractor and sub-contractor are actually connected. Occasionally, a UK company will give a contract to a subsidiary based overseas. In that case, the relief is calculated based on the sub-contractors’ accounts.
See if your case qualifies for R&D Tax Relief with our R and D tax calculator
Another aspect that could come into play when claiming R&D tax credits is salary costs. Although it’s unlikely that a UK-based company will have staff on the payroll who are outside the UK, if they do, the company will be able to claim relief for the people who are directly involved with an R&D project.
Externally provided workers
EPWs can be based anywhere throughout the world and it’s common for bigger companies who are doing R&D work to use EPWs located in China or India. Companies can again claim for costs associated with EPWs which could end up having a significant impact on the overall costs of the project as long as they operate within the normal ‘connected party’ regulations.
In conclusion, the answer to the question posed in the title is – in some cases – yes!