What UK Companies Need to Know About Overseas R&D Restrictions

From April 2024, HMRC tightened the rules on claiming R&D tax relief for work performed outside the UK. Understanding the new overseas R&D restrictions is crucial to ensure your claims remain valid.

What are the new restrictions?

For accounting periods beginning on or after 1 April 2024, R&D activities must generally be carried out within the UK to qualify for tax relief.

• Subcontractors: Costs can only be claimed if the R&D was physically carried out in the UK.
• Externally Provided Workers (EPWs): Work must be performed in the UK, and workers must be on a PAYE/NIC scheme.
• There are specific exemptions where work outside the UK is permitted for geographical, environmental, social or regulatory/legal requirements.

What does this mean for R&D Claimants?

If your business previously relied on overseas contractors, you may need to restructure projects or bring R&D activity back to the UK. Detailed contracts and clear documentation will be more important than ever to demonstrate compliance.

How Ad Valorem can help

At Lumina, we have updated our processes to ensure claims reflect the latest HMRC rules, including the overseas restrictions. We help you review documentation, assess eligibility, and compile compliant claims.

If you’re unsure how these overseas R&D restrictions affect you, get in touch today for expert advice.

FAQs

• Can I still claim R&D tax relief for overseas work? – Generally no, unless the R&D depends on certain conditions which aren’t present in the UK and can’t be replicated here. This may be for geographical, environmental, social or legal/regulatory reasons.
• Are subcontractors outside the UK eligible for R&D relief? – No, subcontracted R&D work must be carried out within the UK to qualify for relief for accounting periods beginning on or after 1 April 2024.
• Do overseas restrictions apply to Externally Provided Workers (EPWs)? – Yes, the costs of externally provided workers (EPWs) will be limited to work undertaken in the UK where workers are paid a salary under the PAYE/NIC scheme.

Concerned about how overseas restrictions affect your claim? Our team can help you navigate the new rules for R&D relief. Get expert advice here.

(E) enquiries@advaloremgroup.uk (T) 01908 219100 (W) advaloremgroup.uk