R&D And Subcontractors Overseas: The ‘Location Of Activity’ Test
- Adil Akhtar
- 11 hours ago
- 17 min read
Why the “Location of Activity” Test Now Matters for Every UK R&D Claim
Suppose a UK software company hires a specialist AI development team in Poland. A biotech startup runs clinical testing in Singapore. A robotics manufacturer sends prototype testing to a lab in Germany.
Until recently, most of these costs could still be included in an R&D tax relief claim.
That changed dramatically.
From 1 April 2024, the UK government introduced a major territorial restriction to ensure R&D tax incentives support innovation carried out physically in the UK. The rule is now embedded in the merged R&D tax relief scheme applying from the 2025–26 tax year onward.
At the heart of the change sits a deceptively simple concept:
The “Location of Activity” test.
And if you misunderstand it, your R&D claim could shrink overnight. In my practice, I’ve already seen companies lose 30–70% of their expected tax credit because overseas subcontractors were incorrectly included in claims. None of them intended to misreport anything,they simply followed the old rules. Let’s unpack how the new system actually works.
The Strategic Policy Shift: Why the UK Restricted Overseas R&D: The Treasury’s concern about “offshored innovation”
Over the past decade, HM Treasury noticed a growing pattern.
Companies were claiming UK R&D relief for work physically performed abroad,particularly through:
● overseas development teams
● foreign engineering contractors
● international testing facilities
● offshore group companies
Technically, under the previous rules, this was often acceptable.
But policymakers felt the incentive had drifted away from its core purpose: stimulating domestic innovation and high-skill employment in the UK. So the Finance Act 2024 introduced territorial restrictions.
From accounting periods beginning on or after 1 April 2024, most expenditure on:
● subcontracted R&D
● externally provided workers (EPWs)
is only eligible if the R&D activity itself takes place in the UK.
This is what HMRC now refers to as the “location of activity” requirement.
And crucially:
It is the physical location where the R&D is performed, not the contractor’s country of incorporation, that determines eligibility. That distinction catches many businesses off guard.
Understanding the Location of Activity Test: The rule in simple terms
To claim R&D tax relief on subcontractor costs:
The underlying R&D work must physically take place in the UK.
If it happens overseas, the cost normally becomes non-qualifying expenditure.
This applies regardless of:
● whether the contractor is UK-registered
● whether the IP belongs to the UK company
● whether the project is managed from the UK
● whether the company is UK tax resident
Only the physical location of the activity matters.
Example: Software development outsourced abroad
Let’s take a scenario I recently reviewed for a fintech client.
Scenario | Eligible for R&D Relief? | Reason |
UK company hires developers in Manchester | Yes | Work physically in UK |
UK company hires contractor in Poland working remotely | No | R&D activity occurs overseas |
UK contractor hires Polish team subcontracted abroad | No | Location of work still overseas |
UK staff supervise overseas developers | No | Supervisory work doesn’t change location |
The key takeaway:
Supervision in the UK does not move the location of activity.
HMRC focuses on where the technical R&D work actually occurs.
The Separate Rule for Externally Provided Workers (EPWs)
PAYE and NIC now determine eligibility
The treatment for agency staff and contractors supplied through labour providers differs slightly.
For Externally Provided Workers (EPWs), eligibility depends on whether their earnings are subject to:
● UK PAYE
● Class 1 National Insurance contributions
If those conditions are met, the costs can still qualify. This creates an important distinction.
Worker Type | Eligibility Test |
Subcontracted R&D | Location of activity |
Externally Provided Workers | PAYE + NIC liability |
I’ve seen companies mistakenly treat EPWs as subcontractors, which can dramatically change the tax outcome.
The Only Exception: “Qualifying Overseas Expenditure”
Now, before you panic if your R&D takes place abroad,there is an exception.
But it is deliberately narrow.
HMRC allows overseas costs if all three conditions are met:
The necessary conditions for the R&D do not exist in the UK
Those conditions exist in the overseas location
It would be wholly unreasonable to replicate them in the UK
This category is known as Qualifying Overseas Expenditure (QOE).
However, the definition of “conditions” is stricter than many businesses realise.
What HMRC accepts as a qualifying condition
Examples HMRC generally accepts include:
● Geographical conditions
○ deep-sea research
○ polar climate testing
○ volcanic geology
● Environmental conditions
○ tropical agriculture trials
○ desert robotics testing
● Regulatory conditions
○ clinical trials requiring specific patient groups
○ jurisdiction-specific medical approvals
These are genuine physical constraints.
What HMRC explicitly rejects
In practice, many claims fail because companies rely on reasons HMRC does not accept, such as:
● cheaper overseas labour
● better access to developers
● lack of UK staff availability
● lower operational costs
HMRC’s position is blunt: Cost or workforce availability does not justify overseas R&D activity.
In other words:
“We outsourced it because it was cheaper” will never pass the test.
Real-World Example: When the Exception Works
Let me give you a practical scenario.
Case Study – Agricultural biotech company
A UK agritech startup was developing genetically modified crops designed for tropical climates.
Their R&D involved:
● crop trials
● soil testing
● growth cycles in equatorial conditions
Clearly, those environmental conditions do not exist in the UK. Even constructing artificial climate facilities in Britain would not replicate real ecosystem variables.
Therefore, overseas trials in Brazil could qualify as Qualifying Overseas Expenditure.
But documentation is essential.
HMRC expects:
● project plans
● environmental justification
● testing requirements
● evidence that UK alternatives were evaluated
Without those records, the claim may fail during an enquiry.
Evidence HMRC Expects Companies to Keep
One important nuance in the new rules:
HMRC does not require evidence when submitting the claim.
However, companies must retain documentation in case HMRC asks for it later.
Typical evidence might include:
● R&D contracts specifying location of workinvoices from subcontractors
● project documentation confirming testing location
● emails confirming technical requirements
● feasibility assessments showing why UK replication was impossible
In practice, I advise clients to keep a short technical memo explaining overseas activity.
It saves enormous trouble during enquiries.
A Hidden Risk: Mixed-Location Projects
Many modern R&D projects occur across multiple countries.
For example:
● design work in London
● prototype build in Germany
● testing in Canada
In those situations, costs must be apportioned on a “just and reasonable” basis between UK and overseas activity.
That sounds simple. But it often requires a granular cost analysis that companies fail to perform. The result? HMRC enquiries.
Why This Rule Is Triggering More HMRC Investigations
Over the past two years, HMRC has significantly increased scrutiny of R&D claims.
The department believes that error and fraud levels in the scheme exceeded £1 billion annually before reforms were introduced.
As a result, overseas activity is now one of the most common triggers for enquiry.
Typical red flags include:
● large subcontractor costsdevelopment work performed abroad
● international group structures
● inconsistent project descriptions
And when HMRC opens an enquiry, the burden of proof sits firmly with the company.
A Question Every R&D Claimant Should Now Ask
Before including subcontractor costs in your claim, ask one simple question:
“Where was the R&D actually carried out?”
Not:
● where the company is registered
● where the contract was signed
● where the project manager sits
But where the technical work physically occurred.
That single distinction determines whether the cost qualifies.
What Many Businesses Still Get Wrong
In my experience advising R&D claimants, three mistakes appear again and again:
Assuming overseas work is still claimable under the old rules
Confusing subcontractors with externally provided workers
Failing to document why overseas activity was necessary
Each of these can drastically reduce a tax credit. And unfortunately, many R&D advisers still overlook the details.
The Contracted-Out R&D Rules: Who Is Actually Allowed to Claim?
Now let’s turn to the issue that causes the most confusion in practice.
Even if your R&D activity takes place in the UK, that does not automatically mean your company can claim the tax relief.
The key question HMRC asks first is this:
Who is carrying out the R&D for whom? In other words, is the work contracted out?
This distinction sits at the centre of the post-2024 R&D reforms, particularly for businesses using subcontractors or working within corporate groups.
Under the updated legislation introduced through the Finance Act 2024, HMRC clarified that the company which decides to undertake the R&D is normally the one entitled to claim the relief. You can review the official explanation here:https://www.gov.uk/guidance/corporation-tax-research-and-development-tax-relief
In professional practice, I often summarise the rule for clients like this:
The company that bears the economic risk and defines the R&D objective is usually the one entitled to the tax relief.
But the devil, as always in tax, lies in the details.
Why the Old System Caused Confusion
Subcontractor claims were historically inconsistent
Before the reforms, the system allowed both:
● SME scheme claims
● RDEC claims
Each had different subcontractor treatment. For example:
Scheme | Subcontractor treatment |
SME R&D scheme | Up to 65% of subcontractor costs claimable |
RDEC (large company scheme) | Subcontractor costs generally not claimable |
The result? Two companies involved in the same R&D project could sometimes both believe they were entitled to relief. HMRC noticed overlapping claims appearing more frequently, especially within multinational groups and outsourced technology development projects. The reforms aimed to remove this ambiguity.
The New Principle: The “Decision-Maker” Test
Who initiated the R&D?
Under the updated framework, HMRC focuses on who initiated the R&D project and takes responsibility for solving the scientific or technological uncertainty.
The company most responsible for the R&D objective normally has the right to claim.
Let’s illustrate.
Example: Engineering development contract
A UK manufacturer hires an engineering firm to design a new robotic component.
Scenario analysis:
Situation | Who claims R&D relief? | Why |
Manufacturer specifies problem and hires engineers | Manufacturer | R&D contracted out |
Engineering firm independently develops new technology | Engineering firm | R&D initiated internally |
Manufacturer funds development but engineers decide technical direction | Depends on contract | Requires deeper analysis |
In real life, the answer often depends heavily on contract wording.
Contract Language Can Decide the Tax Outcome
I cannot stress this point enough.
Two contracts describing the same project can lead to different R&D claim outcomes.
HMRC typically reviews clauses covering:
● intellectual property ownership
● technical specifications
● project objectives
● payment structure
● development risk
Let me share something I’ve seen repeatedly during R&D enquiries.
If the contract states:
“The contractor shall develop a solution to achieve the following technological objectives…”
HMRC often concludes the client initiated the R&D, meaning the client claims the relief. But if the contract instead says: “The contractor will undertake research to determine a technological solution…”
The contractor may be viewed as conducting its own R&D project. Subtle wording differences can completely change the tax position.
Real-World Tribunal Insight: Why Contracts Matter
Quinn (London) Ltd v HMRC – lessons for subcontracted R&D
Although not strictly about overseas subcontracting, the First-tier Tax Tribunal decision in Quinn (London) Ltd v HMRC highlighted an important principle:
Tribunals will analyse the commercial reality of the arrangement, not simply how the parties describe it.
The tribunal examined:
● contractual obligations
● technical responsibilities
● financial risk
This approach mirrors how HMRC now assesses contracted-out R&D.
The lesson for businesses is clear:
The substance of the arrangement matters more than the label used in the contract.
How the Location of Activity Rule Interacts with Contracted-Out R&D
Now we reach the real complexity.
Two separate rules must now be considered together:
Who is entitled to claim the R&D relief
Where the R&D activity physically takes place
Both conditions must be satisfied. Consider the following scenario.
Case study: SaaS company outsourcing development overseas
A UK software company contracts an Indian development agency to build a new AI algorithm.
Step-by-step analysis:
Question | Result |
Did the UK company initiate the R&D? | Yes |
Is the R&D contracted out? | Yes |
Does the UK company have the right to claim? | Potentially |
Where is the activity performed? | India |
Does it pass the Location of Activity test? | No |
Final outcome: The R&D cost is not eligible for tax relief.
Even though the UK company initiated the R&D, the territorial restriction disqualifies the expenditure. This is where many businesses lose relief unexpectedly.
Common Scenario in Technology Companies
Over the past decade, it became normal for UK tech firms to build products using overseas development teams.
Typical arrangement:
● founders in London
● development team in Eastern Europe
● testing team in Asia
Under the pre-2024 rules, most of those costs could still form part of an R&D claim.
Under the 2025–26 framework, they usually cannot.
Unless the work qualifies under the narrow overseas exception, the claim is likely restricted to:
● UK employees
● UK subcontractors
● UK testing facilities
That shift has fundamentally changed the economics of many R&D tax claims.
A Practical Checklist I Use with Clients
When reviewing a claim involving subcontractors, I run through a quick diagnostic checklist.
R&D subcontractor eligibility checklist
Before including subcontractor costs in a claim, confirm:
● The company claiming the relief initiated the R&D project
● The company bears technical and financial risk
● The contract does not simply commission routine work
● The R&D work was physically carried out in the UK
● If overseas, the project meets Qualifying Overseas Expenditure conditions
● The project involves genuine scientific or technological uncertainty
● The company retains technical documentation supporting the claim
If any of those points fail, the expenditure may not qualify. This checklist alone has prevented several six-figure claim errors for my clients.
The Special Case of Intra-Group R&D
Another area where businesses frequently make mistakes involves group companies.
Consider this structure:
● UK parent company
● Irish development subsidiary
● Polish engineering team
If the Polish engineers carry out R&D for the Irish subsidiary, the UK parent cannot simply claim those costs.
HMRC will look at:
● which entity contracted the work
● which entity initiated the R&D
● where the activity occurred
The result can sometimes surprise group finance teams.
A Subtle but Important Distinction
Many companies confuse two separate ideas: Ownership of intellectual property (IP) versus ownership of the R&D claim. They are not the same. A UK company might own the IP produced by overseas development, but still fail the location of activity test.
That means the IP sits in the UK, but the R&D tax relief cannot be claimed.
I’ve had to explain this point to several founders who assumed IP ownership automatically allowed a claim. It doesn’t.
Documentation HMRC Now Expects in 2025–26 Claims
Since August 2023, companies submitting R&D claims must provide additional information forms to HMRC.
These forms require details such as:
● project descriptions
● qualifying expenditure categories
● subcontractor information
● contact details of the responsible officer
Guidance is available here:https://www.gov.uk/guidance/research-and-development-rd-relief-submit-additional-information
HMRC introduced this system because many claims previously contained insufficient technical detail.
In practice, incomplete submissions are now a major trigger for enquiries.
Why HMRC Is Challenging More R&D Claims Involving Overseas Activity
None of us enjoys a tax enquiry landing in the inbox. Yet over the last three years, HMRC scrutiny of R&D claims has increased dramatically, particularly where subcontractors or overseas work appear in the claim.
The reason is simple: the government believes the scheme was being misused.
The Office for Budget Responsibility (OBR) estimated that error and fraud in the R&D tax relief system exceeded £1 billion annually before the recent reforms. This prompted HMRC to tighten the rules and introduce several new compliance measures for claims submitted from 2023 onwards.
You can review the background policy information here:https://www.gov.uk/government/publications/research-and-development-tax-relief-reforms
In practice, this means the Location of Activity test is now one of HMRC’s primary enquiry triggers.
From my own advisory work, I’ve seen enquiries opened for reasons that might seem trivial at first glance,but which signal risk from HMRC’s perspective.
Common HMRC Enquiry Triggers for Overseas R&D Claims
Large subcontractor costs relative to staff costs
Be careful here. If a claim shows:
● relatively small UK payroll costs
● but large subcontractor expenses
HMRC often questions whether the R&D was actually performed in the UK.
For example:
Cost category | Amount |
UK staff | £80,000 |
Overseas contractors | £420,000 |
That imbalance frequently prompts HMRC to ask: “Where did the R&D really occur?”
Even legitimate claims can face enquiries if the cost profile appears unusual.
R&D performed in international group structures
Multinational structures add complexity.
Typical situations HMRC reviews include:
● UK parent companies funding R&D performed by overseas subsidiaries
● group companies subcontracting R&D between jurisdictions
● intellectual property ownership sitting in a different country from the R&D team
In those cases, HMRC examines whether the UK entity actually initiated the R&D, or merely financed work conducted elsewhere.
Weak technical project descriptions
This issue has become far more visible since the mandatory Additional Information Form was introduced.
Claims must now explain:
● the scientific or technological uncertainty
● why existing knowledge could not solve the problem
● how the R&D work addressed that uncertainty
If project descriptions read like product development marketing, HMRC often suspects the work was routine engineering rather than qualifying R&D.
In my experience, this is one of the most common causes of rejected claims.
Mistakes I Regularly See Businesses Make
After advising R&D claimants for nearly two decades, certain errors appear again and again. These mistakes are rarely deliberate, but they can still invalidate part of a claim.
Let’s walk through the most important ones.
Mistake 1: Assuming “remote working” means the activity is UK-based
This is increasingly common in technology companies. A UK company hires developers abroad who work remotely on the project. Because the company operates from the UK, the finance team assumes the R&D activity counts as UK work. Under the Location of Activity test, that assumption is incorrect.
The determining factor is:
where the developer physically performs the work.
If the developer sits in another country, the activity normally counts as overseas R&D.
Mistake 2: Treating contractors as externally provided workers
As discussed earlier, Externally Provided Workers (EPWs) are assessed differently from subcontractors.
However, many claims incorrectly classify overseas contractors as EPWs in order to preserve eligibility.
HMRC frequently reclassifies these costs during enquiries. When that happens, the claim may lose eligibility under the territorial restriction.
Mistake 3: Poor documentation of overseas necessity
When businesses rely on the Qualifying Overseas Expenditure exception, they often provide minimal evidence.
Typical explanations I’ve seen include statements like:
“Testing required specialist facilities not available in the UK.”
Unfortunately, HMRC expects far more detail.
You should be able to demonstrate:
● why the UK could not provide the required conditions
● which overseas conditions were necessary
● why replicating them domestically would be unreasonable
Without this evidence, HMRC may disallow the overseas expenditure entirely.
A Practical Worksheet for Assessing R&D Subcontractor Costs
When reviewing claims for clients, I often use a simple worksheet to determine whether subcontractor costs qualify.
You can replicate this exercise internally before submitting your claim.
Question | Yes | No |
Did the company initiate the R&D project? | ✔ | ✘ |
Does the company bear technical and financial risk? | ✔ | ✘ |
Is the subcontractor performing R&D rather than routine work? | ✔ | ✘ |
Is the R&D activity physically carried out in the UK? | ✔ | ✘ |
If overseas, does it meet the Qualifying Overseas Expenditure exception? | ✔ | ✘ |
Is documentation available proving the location of activity? | ✔ | ✘ |
If multiple answers fall into the No column, the expenditure may need to be excluded from the claim.
This quick exercise can prevent significant compliance issues later.
How Businesses Can Adapt Their R&D Structures
The new territorial rules do not mean companies must abandon overseas collaboration.
But they do require more thoughtful planning. In practice, businesses are adapting in several ways.
Shifting core R&D activities back to the UK
Many technology and engineering firms now keep high-uncertainty experimental work in the UK, while overseas teams perform more routine development.
That structure preserves eligibility for the most valuable parts of the claim.
Using overseas teams for non-qualifying activities
Routine tasks that typically fall outside R&D definitions anyway can still be outsourced abroad, such as:
● product implementation
● quality assurance testing
● software maintenance
● documentation and support
By separating these activities from core R&D work, companies can maintain compliance while controlling costs.
Reviewing contracts before projects begin
Perhaps the most important step is reviewing R&D contracts at the planning stage, not after the project finishes.
A small adjustment in contract wording can determine:
● who is entitled to claim relief
● whether the work counts as subcontracted R&D
● how costs should be treated
In my experience, addressing these questions before development begins saves enormous headaches during the tax filing process.
What the Future May Hold for the R&D Scheme
The UK government has made it clear that the R&D tax relief regime will continue evolving.
Recent reforms include:
● merging the SME and RDEC schemes
● introducing stricter compliance requirements
● tightening overseas cost eligibility
These changes reflect a broader policy goal: ensuring that the tax incentive supports
innovation taking place within the UK economy.
Future developments may include further reporting requirements or increased audit activity, particularly as HMRC continues tackling fraud within the system.
For genuine R&D-performing businesses, however, the scheme remains one of the most valuable corporate tax incentives available.
Summary of Key Insights
The Location of Activity test now determines whether subcontracted R&D costs qualify for UK tax relief.
R&D work must generally be physically performed in the UK for subcontractor costs to be eligible.
Overseas activity is only permitted in narrow circumstances where environmental, geographical or regulatory conditions require it.
Cost savings or labour availability abroad do not justify overseas R&D under HMRC rules.
The company that initiates the R&D and bears the technical risk is usually the one entitled to claim the tax relief.
Contract wording can significantly influence which company is treated as conducting the R&D.
Multinational group structures often create complex eligibility questions that require careful analysis.
HMRC increasingly scrutinises claims involving large subcontractor costs or overseas development work.
Maintaining detailed documentation explaining the location and purpose of R&D activity is essential for defending a claim.
Businesses that plan R&D structures carefully,particularly the location of experimentation and contract terms,can still maximise tax relief while remaining compliant with the new rules.
FAQs
Q1: Can a UK company still claim R&D tax relief if a subcontractor occasionally travels abroad to complete part of the research work?
A1: Well, it’s worth noting that HMRC looks at where the R&D activity physically takes place, not the nationality of the subcontractor. In my experience with engineering firms, occasional overseas site visits don’t automatically kill the claim. For instance, if a UK subcontractor conducts most of the experimental work in Manchester but travels to Germany for two weeks to test a prototype, you would typically apportion the costs. Only the portion of activity actually performed in the UK would qualify. The key is documenting time spent in each location and applying a fair cost split. Without that record, HMRC may assume the entire subcontractor fee relates to overseas activity and disallow it.
Q2: If a UK company hires a foreign subcontractor who temporarily works in the UK, can those costs qualify for R&D tax relief?
A2: Yes, potentially. The location rule focuses on where the work is carried out, not the subcontractor’s nationality or company registration. I’ve seen situations where a specialist robotics engineer from Sweden worked on-site in Cambridge for several months during a prototype development phase. Because the work physically occurred in the UK, the expenditure could be included in the claim. The practical tip here is to keep evidence such as travel records, work schedules and project reports showing the activity occurred in the UK.
Q3: Can cloud-based collaboration or remote supervision from the UK count as UK R&D activity?
A3: This is a common misunderstanding. In my experience advising SaaS startups, remote oversight does not change the location of activity. If developers in another country are doing the technical work—even if a UK project manager supervises them through Zoom—the activity is still considered overseas. The supervision might qualify as staff time for the UK employee, but the overseas contractor’s work normally would not. It’s a subtle distinction that many founders overlook.
Q4: What happens if a subcontractor performs part of the R&D in the UK and part overseas during the same project?
A4: In those cases, the costs should usually be apportioned on what HMRC calls a “just and reasonable basis.” In practice, I’ve helped clients allocate costs based on engineer hours, milestone phases or laboratory usage. Imagine a materials company conducting design modelling in Leeds but performing durability testing in Canada. Only the UK portion of the work can normally be included in the claim unless the overseas testing meets the strict “necessary overseas conditions” exception.
Q5: Can a UK business claim R&D relief if overseas testing is required because UK facilities are fully booked?
A5: Surprisingly, yes—sometimes. HMRC guidance recognises that if the required testing facility exists in the UK but cannot be accessed within the project’s timeframe, using an overseas facility may still qualify. I once advised a manufacturing client whose crash-testing facility bookings in the UK were delayed by six months. Because the R&D project timeline made waiting commercially unrealistic, overseas testing was considered acceptable. The company kept correspondence showing UK facilities were unavailable within the necessary timeframe, which proved crucial during an HMRC review.
Q6: Can payments to overseas universities ever qualify for UK R&D tax relief?
A6: Occasionally, but the circumstances are quite narrow. If the overseas university is conducting R&D because specific expertise, regulatory approval or environmental conditions exist there and cannot reasonably be replicated in the UK, the expenditure might qualify. I once worked with a pharmaceutical startup collaborating with a specialist clinical research unit abroad because the required patient population simply did not exist in the UK. In that case, the overseas work could be justified under the “necessary overseas conditions” rule.
Q7: Does the location rule apply to all R&D cost categories or only subcontractors?
A7: This is an important nuance. The territorial restriction mainly affects subcontractors and externally provided workers. Other qualifying costs—such as staff salaries, consumables, software licences and cloud computing used in R&D—are generally not subject to the same location test. For example, a UK employee travelling abroad to conduct field testing may still have their salary included in the claim because they remain a UK employee on the payroll.
Q8: Can a UK startup outsource R&D to its own overseas subsidiary and still claim relief?
A8: This arrangement often raises red flags. In my experience reviewing group structures, HMRC will examine whether the UK company genuinely initiated the R&D or simply funded work performed elsewhere in the group. If the overseas subsidiary carries out the experimental work abroad, the location restriction may prevent the UK parent from claiming those costs. Multinational startups should analyse the contractual arrangements carefully before assuming group outsourcing will qualify.
Q9: What evidence should companies keep to prove where R&D activity took place?
A9: In practice, documentation is your best defence. I advise clients to retain project schedules, contractor agreements, laboratory booking confirmations, travel records and technical reports showing where experiments occurred. For software companies, even version control logs or development sprint documentation can help demonstrate where work was performed. HMRC rarely asks for this information immediately, but during an enquiry it becomes invaluable.
Q10: Can a UK business rely on cost savings abroad to justify overseas R&D activity?
A10: Unfortunately not. This is one of the most common misconceptions I encounter. Lower labour costs or easier access to developers overseas are not valid reasons under HMRC’s overseas activity rules. The law specifically excludes cost and workforce availability as qualifying factors. If a company moved development to another country purely for economic efficiency, the associated subcontractor costs would normally fall outside the R&D relief regime.
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