HMRC has published draft guidance on the new rules for contracted-out R&D and for expenditure on payments to contractors where the R&D is necessarily undertaken outside the UK. This is a consultation on new, draft guidance for these two areas only, rather than attempting to cover the entirety of the new regime from 1 April 2024. Section 6 of the guidance includes several useful examples of scenarios where R&D is contracted out overseas but could still meet the conditions for relief.
Section 7 addresses contracting out R&D more generally in the UK, where one party commissions another party to carry out the R&D on its behalf. The draft guidance here provides detailed analysis of CTA 2009 s 1133 (the principal new section on contracting out, to be inserted by Sch 1 para 9 of Finance Act 2024) together with various practical examples.
Stuart Bentley, Director at Azets, commented: ‘While this guidance is still draft, there are some key points worth emphasising:
More detail is given around the possible inclusion of overseas expenditure, with some recognition that time taken to replicate overseas conditions in the UK could seriously impact on R&D activity.
The need to reasonably apportion any overseas costs based on whether elements could have been replicated in the UK.
The further emphasis on record keeping, even down through any supply chain, to ascertain the nature and location of the R&D.
When considering contracted (as distinct to subcontracted) R&D, “it is important that the company making the decision to undertake R&D gets the relief for the expenditure”.
It introduces the concept of R&D of “intended or contemplated”, requiring a “specific appreciation of what R&D will be done”.
It also emphasises the need for an actual contract that defines the R&D to be undertaken.’
HMRC has published draft guidance on the new rules for contracted-out R&D and for expenditure on payments to contractors where the R&D is necessarily undertaken outside the UK. This is a consultation on new, draft guidance for these two areas only, rather than attempting to cover the entirety of the new regime from 1 April 2024. Section 6 of the guidance includes several useful examples of scenarios where R&D is contracted out overseas but could still meet the conditions for relief.
Section 7 addresses contracting out R&D more generally in the UK, where one party commissions another party to carry out the R&D on its behalf. The draft guidance here provides detailed analysis of CTA 2009 s 1133 (the principal new section on contracting out, to be inserted by Sch 1 para 9 of Finance Act 2024) together with various practical examples.
Stuart Bentley, Director at Azets, commented: ‘While this guidance is still draft, there are some key points worth emphasising:
More detail is given around the possible inclusion of overseas expenditure, with some recognition that time taken to replicate overseas conditions in the UK could seriously impact on R&D activity.
The need to reasonably apportion any overseas costs based on whether elements could have been replicated in the UK.
The further emphasis on record keeping, even down through any supply chain, to ascertain the nature and location of the R&D.
When considering contracted (as distinct to subcontracted) R&D, “it is important that the company making the decision to undertake R&D gets the relief for the expenditure”.
It introduces the concept of R&D of “intended or contemplated”, requiring a “specific appreciation of what R&D will be done”.
It also emphasises the need for an actual contract that defines the R&D to be undertaken.’
