Changes to HMRC Guidance on R&D: Contracted and Overseas

Sam Palmer
Research and Development
Sam Palmer, Manager for Lovewell Blake

Last week, HMRC published their draft rules and restrictions on contracted-out R&D and overseas workers. Overseas expenditure draft guidance has remained relatively similar to its original however there has been some significant and promising changes to contracted-out R&D compared to previous communications from HMRC.

Sam Palmer, Manager for Lovewell Blake

Here are the three main takeaways of HMRC’s current viewpoints on the matter:

  1. Expenditure on overseas EPWs or contractors is allowable only if it is necessary to undertake the R&D outside of the UK. E.g. you can’t really study the amazon rainforest’s undergrowth from Norwich.
  2. Expenditure on consumables and software must be used in the UK but can be sourced from elsewhere around the globe. E.g. you can still buy tools from overseas, but you have to use them in the UK.
  3. R&D is considered ‘contracted-out’ if a customer specifically contracts for and request R&D be done within a project. For fixed-end deliverable contacts, as seen across engineering, construction and manufacturing, the R&D could well belong with the contractor. It is imperative that contracts are reviewed closely to determine where the R&D belongs. 

To reiterate, this is draft legislation and subject to many further changes before being implemented, but certainly a positive move from HMRC.


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