Before we start, R&D tax relief is a reduction in UK corporation tax. So, to be eligible for the relief, the claim must be made by a company that is paying UK corporation tax.
The relief is based on the amount of qualifying activities and expenditure undertaken by the UK based company. It isn’t necessarily where the research and development activities are taken. This is unknown to many businesses who think that when they perform activities abroad, it isn’t possible to add it to their R&D claim.
The most common time that R&D work is undertaken abroad is when areas of the work are subcontracted. Sometimes, companies don’t have the facilities, technology or employees to carry certain necessary work in the project. If this is the case, it gets outsourced.
For SME application, subcontracted work doesn’t have to be undertaken within the UK and can be taken wherever they are located or anywhere else in the world. However, if the R&D tax relief claim is for a large company, there is no relief available for subcontracting overseas work, unless it is given to an individual or a qualifying body.
Salary is generally one of the largest components of R&D tax relief. Relief for the salaries varies depending on the employment position of those contributing to the project.
It’s unlikely that a UK company will have staff on the payroll working outside the country but these costs are still redeemable for tax relief if they do.
Large companies may have divisions based globally. If some of the research and development is carried out by a division that is based abroad, it could still qualify for R&D tax relief. This is so long as the overseas branch is a permanent establishment.
Where UK operations are part of an international business, the treatment of R&D becomes more complex so it’s best to speak to a specialist in R&D tax claims.
Speak to an expert R&D tax claims specialist
Depending on the project, there is a range of costs that could be applicable. If you are unsure if some of the possible costs you incurred are eligible, we can help talk you through it.
If you wish to discuss your company’s R&D expenditure, claims and the R&D tax credits that may be available to you, contact R&T Consultants on 01858 445 522 or email firstname.lastname@example.org.
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