ICAEW’s Tax Faculty has responded to HMRC’s consultation on its draft guidance for aspects of the new research and development (R&D) tax relief rules. The new rules apply to the ‘merged scheme’, which comes into force for accounting periods beginning or after 1 April 2024.  The guidance covers: 

• the restriction applying for contractor payments and payments for externally provided workers (EPWs) where the R&D activity takes place overseas; and
• the new rules for contracted-out R&D.

ICAEW believes that, while the draft guidance on these two areas is now clearer than before, further clarity would be helpful in a few points. 

In particular, it does not fully address the implications of an arrangement between the customer and the contractor that is governed by multiple contracts (signed on different dates). The guidance should explain, for example, how it is possible to determine if the contractor contemplated the R&D at the time of the contract, when multiple contract dates exist. 

ICAEW would also appreciate greater clarity on a requirement that the carrying-on of R&D needs to be the primary objective of the customer in engaging the contractor, if the customer is to claim the associated R&D tax relief.