With a large proportion of businesses unaware that they are eligible to claim R&D tax credits, it’s not surprising that only a fraction of the funding owed by the government is being recouped. There are a number of reasons companies fail to claim their due relief, from complex claims processes to a lack of awareness that their project qualify.

Even fewer businesses realise that their R&D activity doesn’t necessarily have to take place in the UK for it qualify for R&D tax credits. Below, we explain what overseas activity is eligible for the relief.

What HMRC says about overseas projects

R&D tax relief applies to UK corporation tax, so as long as your business is British-based and subject to UK corporation tax, a claim for R&D tax relief can be made. Anyof the company’s global profits that are subject to corporation tax can be reduced by a claim for an eligible R&D project, whether it takes place in the UK or overseas.

Sub-contracting

Using sub-contractors outside the UK doesn’t necessarily affect your claim; as long as the sub-contractor in question is employed on a specific part of the research and development activity, they can be based anywhere in the world. When it comes to businesses using an HMRC-approved ‘qualifying body’, relief can be claimed, but the eligibility criteria and rate of relief are subject to a range of conditions. These include the nature of the relationship between the contractor and sub-contractor.

Making an accurate claim for R&D tax credits on overseas activity can be complex, which is why many companies choose to employ a tax relief expert to help. Over-claiming or discrepancies can result in investigation from HMRC, so it’s advisable to seek assistance from a professional, especially if you have not claimed for an overseas project before.

Key points regarding R&D claims for overseas projects:

  • The gross salary costs for overseas staff directly involved in the R&D project can be claimed for.
  • Collaborative research is where R&D activity is conducted in-house, in conjunction with an overseas entity. In such cases, each company’s costsare evaluated, with claims made based on the qualifying expenditure.
  • Claims for externally provided workers – i.e. staff provided by another company for the R&D project – do not come under subcontracted R&D, but need to be included in a claim towards direct expenditure. The same restrictions apply to these workers as to subcontracted staff.

Find out more about R&D relief on overseas activity

Those businesses looking to learn more about claiming R&D tax credits on overseas activity should consult an R&D tax specialist. With extensive experience of the particular complexities associated with these claims, they can ensure you provide all the necessary details to achieve a successful claim.

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