Corporation Tax Act 2009 section 1138A

Externally provided workers and contractors: R&D undertaken abroad

Section 1138A sets out the limited circumstances in which expenditure on research and development carried out outside the United Kingdom can still qualify for R&D tax relief, including a special provision for Northern Ireland companies.

• R&D conducted overseas can qualify for relief only where specific conditions necessary for the research cannot be found or reasonably replicated in the UK, or where the work is undertaken or contracted out by a company registered in Northern Ireland.
• Qualifying overseas conditions include geographical, environmental, social, legal or regulatory factors — but explicitly exclude cost savings and the availability of workers abroad.
• The Treasury has the power to make regulations specifying additional factors that do not count as qualifying conditions for overseas R&D.
• The Northern Ireland exception does not apply to a company in an accounting period if the company has not traded in goods or in certain electricity activities during that period and has notified HMRC that it wishes to rely on the restriction of Chapter 2 relief for Northern Ireland companies.