The R&D Tax Credit Program legislation provides various requirements in both the SME scheme and the Large Company scheme that need to be satisfied in order for a company to be deemed eligible to make a claim. Inland Revenue have summarised their interpretation of these requirements in the CIRD manual. Included in these requirements is a condition that expenditure incurred must be qualifying expenditure. Therefore, the nature of the transaction is important in determining the eligibility of the R&D for tax relief. For example, a SME cannot claim R&D Tax Credit relief under the SME scheme as a subcontractor.

The location of where the R&D is performed is not a requirement, only that the expenditure is allowable as a deduction in computing the profit of the period of the claimant company (i.e. the claimant must be chargeable to corporation tax). Inland Revenue discusses a situation where an overseas branch of a UK company can qualify for the relief, but the branch must be within the charge to corporation tax, and the R&D must be relevant to a trade within the charge to corporation tax. This principle extends (with necessary modifications) to UK branches of foreign companies.

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