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can overseas contractor costs be claimed for research and development tax credits

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FA02/SCH13/PARA6 - 11 A company can claim VRR for its qualifying expenditure on R&D which it has sub-contracted to someone else. Qualifying expenditure on sub-contracted R&D is payments made by a company (the principal) for R&D contracted out by it to another person (the sub-contractor) that satisfy certain conditions. For expenditure incurred on or before 31 July 2008 the treatment of the expenditure and the relief available differed depending upon who the sub-contractor. There were two situations: sub-contractor a charity, university or scientific research organisation CIRD75525, sub-contractor not a charity, university or scientific research organisation CIRD75550.

Some of the common errors made in R&D tax relief claims are: Project activities outside the scope of R&D for tax purposes are included in the claim. Expenditure outside the qualifying categories is claimed CIRD82000. Staffing costs are claimed in respect of people who are not employees of the company CIRD83000. (However, consider whether the expenditure qualifies as expenditure on externally provided workers CIRD84000.) Claims are made in respect of overheads that do not qualify as consumable items CIRD82300 or consumable stores CIRD82450. Expenditure is claimed on a particular item for a period before it was in a qualifying category CIRD98900. Special rules for connected parties are not applied CIRD82150. Companies do not recognise they are not SMEs CIRD91100. SME’s failing to make claims under the Large Company Scheme CIRD90050. For the SME scheme only: A loss previously surrendered for a payable tax credit is carried forward CIRD90500. Unconnected subcontractor expenses are not restricted to 65% CIRD84200. The PAYE & NIC liability for the period in respect of employees of the company is less than the payable tax credit claimCIRD90500. This restriction is removed for accounting periods ending on or after 1 April 2012 The amount of surrenderable loss for the purposes of the payable tax credit is not restricted to 150%, or 175% from 1 August 2008, or 200% from 1 April 2011 or 225% from 1 April 2012, or 230% from 1 April 2015 of qualifying expenditure CIRD90500. A payable tax credit claim is made for expenditure that only qualifies under the large company scheme CIRD90500. No account is taken of subsidies or Notified State Aid - CIRD81650 and CIRD81670.

CTA09/S1079 Contributions by large companies, but not by SMEs, to independent R&D for the purpose of funding research and development carried on by the recipient qualify for R&D tax relief if they are made to a qualifying body (CIRD82250), an individual, or a partnership each member of which is an individual. The R&D towards which the contribution is made must be relevant research (see CIRD81400), in relation to the company making the contribution. The R&D must not have been contracted out to the person receiving the funding by another person. The person receiving the funding must not be connected with the company (see CIRD82150).

-CTA09/S104A(3)(a) To qualify under the Research and Development Expenditure Credit scheme the R&D must be contracted out to the SME by: a large company, or a person otherwise than in the course of a trade profession or vocation the profits of which are chargeable to tax under Case I or II of Schedule D. The expenditure must be relevant R&D for the SME (CIRD81400) and be revenue expenditure incurred on either: consumable items CIRD82300, consumable stores CIRD82450, software CIRD82500, staffing costs CIRD83000, externally provided workers CIRD84000, subjects of clinical trials CIRD84400. Or, work contracted by the SME company to be directly carried out by: a qualifying body (see CIRD82200), or an individual, or a partnership, each member of which is an individual.

Chapter 6A CTA 2009 S104C to E See CIRD81470 To qualify under the expenditure credit scheme the R&D must be contracted out to the SME by: a large company, or any person otherwise than in the course of carrying on a chargeable trade. (A chargeable trade is a trade, profession or vocation carried on wholly or partly in the United Kingdom, the profits of which are chargeable to income tax under Chapter 2, of Part 2 of ITTOIA 2005, or chargeable to corporation tax under Chapter 2 of Part 3 of CTA 2009) The expenditure must be relevant R&D for the SME (CIRD81400) and be revenue expenditure incurred on either: consumable items CIRD82300, software CIRD82500, staffing costs CIRD83000, externally provided workers CIRD84000, subjects of clinical trials CIRD84400. Or, work contracted by the SME company to be directly carried out by: a qualifying body (see CIRD82200), or an individual, or a partnership, each member of which is an individual.

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The overseas contractor costs can be claimed for R&D tax creditsisOverseasContractor && (isQualifyingBody || isRelevantRD) && isQualifyingExpenditure && !isChargeableTrade
The overseas contractor costs cannot be claimed for R&D tax credits!isOverseasContractor || !(isQualifyingBody || isRelevantRD) || !isQualifyingExpenditure || isChargeableTrade