The below overseas restriction rules apply to accounting periods beginning on or after 1st April 2024.

Overseas Restrictions on Contractor Payments 

Contacted R&D project activities (undertaken from the above period) must now be undertaken in the UK to qualify for any aspect of the R&D tax credit scheme, this means:

• Contractor employees must carry out the R&D activities in the UK
• Contractor consumables must be used/consumed in the UK (consumables can be sourced from elsewhere)
• Contractor workers must utilise software, data and cloud services purchased for an R&D activity in the UK (although these services can be sourced elsewhere)
• Payments to clinical trial volunteers residing in the UK

Overseas Restrictions on Externally Provided Workers (EPWs)

Externally provided workers (EPW) only qualify if the company or the staff controller is required to apply Pay As You Earn (PAYE) and account for National Insurance Contributions (NICs), either in full or in part, for a worker. If so, this will act as a gateway and all that workers earnings will now qualify (minus the proportion when they were not engaged in a customer’s R&D activity).

Exceptions to Overseas Restrictions

Other than the exception for companies registered in Northern Ireland claiming Enhanced R&D Intensive Support (ERIS),  all the following three circumstances must apply before expenditure on overseas contractors or EPWs can be considered as eligible for R&D tax relief.

• Conditions necessary for the R&D are not present in the UK
• Conditions are present in the location the R&D was undertaken
• Wholly unreasonable to replicate the conditions in the UK