Can an overseas company claim UK R&D tax relief?

Q: Can an overseas company claim UK R&D tax relief?

Yes, but only through a UK permanent establishment that is within the charge to UK corporation tax, and only for R&D relevant to the trade carried on through it. Place of incorporation is not the test. A company incorporated in Delaware with a UK branch taxed here can claim; a company incorporated in England with no UK taxable presence cannot.

The test is the corporation tax charge, not the flag

R&D relief attaches to profits charged to UK corporation tax. That gives you one question to answer: is there a trade within the charge to UK corporation tax, and is the R&D relevant to it?

A non-UK resident company trading in the UK through a permanent establishment is within the charge on the profits attributable to that establishment. It can claim R&D relief on qualifying expenditure that is deductible in computing those profits. It claims by filing a UK company tax return for the permanent establishment, in the ordinary way — there is no separate mechanism and no special form.

Everything else follows the ordinary conditions. The permanent establishment’s trade satisfies the trade condition. The expenditure has to be deductible in computing the profits of that trade. The company must not be an ineligible one. And where SME status matters, it is tested on the whole enterprise worldwide, not on the UK operation in isolation — which is how a substantial UK-facing branch of a large overseas group is correctly a non-SME even though the UK headcount is small.

A company with no UK permanent establishment and no other UK taxable presence has nothing to claim against and cannot claim.

Where the R&D is done is a different question

Two things are easily run together and should not be:

Who can claim turns on whether the claimant is within the charge to UK corporation tax. That is this entry.
What expenditure qualifies is restricted by where the work is carried out. For accounting periods beginning on or after 1 April 2024, payments for contracted-out R&D and for externally provided workers generally qualify only where the work is undertaken in the UK, subject to a narrow exception where the conditions necessary for the R&D are not present in the UK and it would be wholly unreasonable to replicate them here. Cost and the availability of workers are expressly excluded from being such conditions. Companies with a registered office in Northern Ireland have their own treatment under ERIS.

So a UK permanent establishment of an overseas group is a perfectly good claimant whose claim may nonetheless be small, because much of the group’s development work happens elsewhere. Answer the eligibility question first, then the expenditure question. They have different answers and different sections.

The foreign branch exemption removes expenditure

Running the other way: a UK company with overseas branches can elect for the foreign branch exemption, which takes the profits and losses of those branches out of the UK corporation tax charge.

Where that election applies to the period, expenditure brought into account for the exempt foreign permanent establishment is treated as attributable to it and is outside R&D relief. This is not a restriction on the company — it remains a perfectly eligible claimant — but on that slice of its expenditure.

The election is made once and applies to all of the company’s foreign branches. Groups that made it years ago for reasons that had nothing to do with R&D routinely do not realise it is removing R&D expenditure now. If an overseas branch is doing development work, establish whether the election is in place before anything is scoped.

Worked example

Illustrative. A US-parented engineering group. Its UK subsidiary employs 40 engineers and files UK returns. The parent also has a UK branch through which it sells directly to two UK customers, taxed here as a permanent establishment. The group employs 3,000 people worldwide.

Entity	Within the charge to UK CT?	Position
US parent, as such	No	Cannot claim
The parent’s UK permanent establishment	Yes	Can claim on qualifying expenditure deductible against the PE’s trade
The UK subsidiary	Yes	Can claim in the ordinary way
The UK subsidiary’s SME status	—	Not an SME: 3,000 staff across linked enterprises, so ERIS is closed to it

The UK subsidiary has 40 employees and would call itself a small company. On the aggregated test it is not an SME, so it claims the merged scheme credit — which, for accounting periods beginning on or after 1 April 2024, is what it would have claimed anyway. In an open pre-2024 year the same fact would have been the difference between the SME scheme and RDEC, and it is worth checking that whoever prepared those claims applied it.

Where claims go wrong

Claiming for the wrong entity in the group. The company that bears the cost and is within the UK charge is the claimant. Groups regularly push the claim into the entity that feels like the R&D company, which is not always the one taxed here.
Testing SME status on the UK operation. Linked enterprises are counted wherever in the world they sit. This is the single most frequent error on inbound-group claims, and it is expensive because it moved the scheme in every pre-2024 year.
Missing a foreign branch exemption election. It is not on the R&D papers and it is often years old. Ask the group’s tax team directly rather than inferring it from the accounts.
Assuming a UK-incorporated company always qualifies. Incorporation is not the test. A UK-incorporated company that is resident elsewhere by treaty and has no UK taxable trade has nothing to claim.
Confusing the claimant test with the overseas expenditure restriction. They are separate rules with separate consequences, and conflating them produces both wrongly abandoned claims and wrongly inflated ones.