QUESTION: My manufacturing company regularly makes R&D claims for corporation tax deduction, but I heard there have been changes in what would be eligible for research undertaken overseas. What does that mean for my cross-border business and are there any other changes to R&D eligibility?
ANSWER: R&D legislation is in a transition period were there have been a host of new rules introduced that come into effect on different dates. Previously companies could include costs for qualifying R&D projects no matter where the R&D activity was undertaken.
However, to encourage economic activity within the UK, eligible costs are restricted for R&D undertaken overseas for accounting periods beginning on or after April 1 2024. The general rule is that costs must be incurred for R&D taking place in the UK.
There is an exception when overseas costs can be included in an R&D claim; where it is impossible to undertake the R&D activity due to the expertise, test material or equipment required not being present in the UK. Without knowing what industry your manufacturing company operates in it is impossible to advise whether your costs incurred across the border fall into this exemption.
If you have simply chosen to engage these non-UK workers for their proximity or they are more cost effective, this cost would not qualify for an R&D claim. However, that does not rule out that R&D project, it should still qualify along with its costs relating to UK-based R&D activity.
You may find yourself in a scenario where you must weigh up the savings made by engaging overseas workers against engaging UK workers to qualify for R&D tax relief.
Other recent changes to R&D claims mean that from August 2023, companies must submit an additional information form to include detail of their R&D claim prior to submitting the actual R&D claim on their Corporation Tax return for the claim to be valid.
For accounting periods ending March 31 2024, should a company not have made an R&D claim in the last three years, they are required to notify HMRC within six months of their year end to advise the company intends to make a claim.
The tax relief rates also changed effective from April 2023 and applies straight away regardless of when your accounting period began. The tax relief rates changed again on April 1 2024, merging the two different schemes but this time it only applies to accounting periods starting after April 2024.
Given all the changes in R&D claim, it is important to stay on top of them and therefore I would recommend you work with the company’s tax advisers to make sure you are capturing the correct costs eligible for an R&D claim, applying the correct rates and make the necessary notifications to HMRC on time.
- KellyAnne Murtagh (kellyanne.murtagh@aabgroup.com) is senior tax manager at AAB Group Accountants Ltd (www.aabgroup.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
