Anyone with experience of claiming R&D tax credits will know that the process can be complicated. Not only must you identify and gather all the records of your qualifying costs, you also need to make an accurate calculation of what you’re owed and provide supporting documents to evidence the legitimacy of your claim. It will come as no surprise, then, that adding overseas expenditure into the mix complicates things still further.
There’s one thing that is clear: overseas costs on R&D projects can be claimed for. As long as your organisation is a UK company paying UK corporation tax it doesn’t matter where the R&D activity is taking place. There are, however, some complexities around how overseas costs can be claimed and the rate of relief that can be awarded. We have a brief look at those here.
Overseas sub-contracted R&D costs
One of the most significant costs that many companies incur is overseas sub-contracting work. When claiming for sub-contracted work, claimants must ensure that their definition of ‘sub-contracted’ meets that of HMRC. Particulars such as the relationship between the claimant and the sub-contractor, for example, affect the rate of relief that can be rewarded.
Costs relating to sub-contracted work are eligible on an R&D tax claim if the contractor has sub-contracted a specific part of the project. Businesses claiming under the SME scheme can sub-contract activity to an overseas organisation, and the activity can be performed anywhere in the world.
When it comes to the RDEC scheme, for larger companies, some different guidance applies. An individual or ‘qualifying body’ that has been pre-approved by HMRC must carry out the sub-contracted work in order for the claimant to be able to claim R&D tax relief on it. The qualifying body can, however, be based anywhere in the world.
Other qualifying overseas costs
Some companies employ externally provided workers to assist with their R&D projects overseas. Provided by another company, these workers can be based anywhere in the world. Many larger businesses, for example, employ externally provided workers in countries such as China and India. They operate under ‘connected party’ regulations and should be claimed for as such.
On occasion, an organisation with have overseas employees on its payroll. If the employees are directly involved with the R&D project, then their salaries can be claimed for. It’s important to remember, however, that compliance requirements in the other jurisdiction are taken into account.
Making an overseas R&D tax credit claim
Due to the complexities of an R&D tax relief claim that involves overseas costs, we strongly recommend consulting a professional tax specialist. While an R&D tax calculator can be useful to get an idea of what you could be entitled to, making an accurate claim often depends on the services of an expert. Not only can you receive help with identifying qualifying costs and how you can claim for them, you will also be assisted with preparing the supporting documents that HMRC require.