Kirby & Haslam

Overseas R&D – Will It Affect Your R&D Claims?


Changes to R&D Tax Credits were made in 2022, and they are set to go into effect in April 2023. This makes modifications to both RDEC and SME R&D relief.

Measures included in the law include broadening the scope of R&D relief to encompass data and cloud computing investment (more on this here), as well as expanding the term to include pure mathematics. Along with this, there are procedures in place to combat misuse and compliance (learn more about this here) as well as resolve any future abnormalities or unintended repercussions. Perhaps the most significant change for firms with an overseas presence is shifting the focus of relief to innovation in the UK.

If these changes affect your business, it is critical that you understand what the changes are, when they will take effect, and what else you may need to consider to ensure you are sufficiently prepared.

Whats changing with overseas R&D?

The changes create new requirements affecting subcontracted R&D expenditure for externally supplied staff beginning in April 2023. Subcontracted R&D activities must be undertaken within the UK in order to be included in an RDEC or SME R&D tax relief claim, and externally provided staff must be subject to UK PAYE.

There are some circumstances where the overseas activity will be permitted, where the expenditure meets the definition of ‘qualifying overseas expenditure’:

  • Circumstances where it would be wholly unreasonable to undertake the R&D in the Uk due to geographical, environmental or social factors (e.g. deep ocean research)
  • Or, where legal or regulatory requirements require activity to take place in specific territories (e.g. clinical trials)

These rules will apply to a company’s first accounting period which is behind on or after April 2023.

Why are these changes taking place?

The legislation’s goal is to refocus R&D tax relief on UK-based R&D work in order to better stimulate innovation in the UK. The government has said that it wants to maximise the advantage to the UK from the over-spill impact of the relief-incentives R&D effort.

However, the proposed modifications to overseas R&D relief imply business reflection to swing toward employing UK-based suppliers or services, but enterprises who require global talents will be unlikely to be able to do so.

This will be a significant problem for innovative technology firms, particularly those facing worldwide competition for specialised skills. It has the potential to impede the UK’s capacity to participate in global R&D programmes and, over time, to result in a talent outflow away from the UK.

Other changes taking place include:

  • The categories for qualifying expenditure are changing to include cloud computing and pure mathematics
  • All claims are to be submitted digitally
  • Technical narratives will now be required at the time of submission
  • All claims must be endorsed by a senior member of the company submitting the claim
  • Companies must inform HMRC 6 months in advance of submitting an R&D claim

Kirby and Haslam – helping you maximise your claim

Kirby and Haslam understand the unique hurdles that UK firms confront while doing R&D overseas. The imminent legislative changes demonstrate that it is more critical than ever to understand how you may be affected and what efforts you can undertake to guarantee you are ready for implementation.

Kirby and Haslam offers numerous services for accountants and R&D firms. We offer bespoke report writing services through our all new subscription based service – with end to end compliant and enquiry support packages to help businesses provide the best possible responses to the revenue. Our commitment is to get our clients the best resolution.