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. Acting as a gateway, if the PAYE and NICs are met for a worker, then all their earnings qualify. For (minus the proportion when they were not engaged in a customer’s R&D activity).
Exceptions to Overseas Restrictions
SMEs registered in Northern Ireland who are claiming Enhanced R&D Intensive Support (ERIS) may be able to opt out of the overseas restrictions by notifying the HMRC.
Other than the above, all three of the below circumstances must apply before a company could claim for any overseas contractor or EPW R&D work.
- 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