R&D Tax Credits Explained – Ireland

Research and development (R&D) tax credits are a government incentive designed to encourage companies to invest in innovation and R&D activities. The benefits of the incentive have increased in recent years as it is recognised that companies have to undertake R&D to stay competitive in the global economy. The Revenue Commissioners have detailed guidelines that companies need to follow when claiming. Our approach to preparing claims has proved very successful in terms of agreeing claims with Revenue.

What are R&D Tax Credits?

R&D tax credits are a corporation tax relief that can reduce a company’s liability or, if a company does not have such a liability, it may be able to claim cash as a payable credit.

The R&D tax credit is calculated as 25% of qualifying expenditure incurred in the carrying on of qualifying R&D activities such as wages & salaries, material costs, outsourced costs, direct overheads and plant & machinery.

In the Budget 2020 it was announced that the R&D tax credit would increase to 30% for micro and small companies, subject to State Aid approval.

The credit can be set against the corporation tax liability in the accounting period of the claim and in the previous accounting period. If there is no such liability, then the company can claim a payable credit which is paid in three near equal annual instalments broadly up to the amount of:

  • Corporation tax liabilities paid in the prior 10 years
  • Payroll taxes, normally arising in the year of claim

Any excess credits are carried forward for set off against a future corporation tax liability.

Companies are also required to keep ongoing records of R&D costs and activities to be able to make a claim.

What Qualifies as R&D?

R&D must be systematic, investigative or experimental, in a specified field of science or technology.

Activities are qualifying where they:

  • Seek to achieve a scientific or technological advance, and
  • Involve the resolution of scientific or technological uncertainty

Qualifying R&D can involve the development of new or improved products, processes, services, materials, or devices. R&D does not have to be successful to qualify.

Our Approach to Claim Preparation

Our approach to preparing claims has resulted in a strong record with claims being accepted by Revenue. We prepare claims as follows:

  • Free initial discussion to assess the R&D activities and the scale of likely qualifying activities
  • Discuss R&D projects in detail with key technical staff to obtain information required
  • Establish a suitable methodology and help the company establish the qualifying costs
  • Prepare a detailed report to support the claim including a detailed description of the major R&D activities to show how they meet the qualifying definition, and also the qualifying costs
  • Advise companies on record keeping requirements
  • Assist with any questions that Revenue may raise into a claim

Unlike some other advisers, we prepare a full report at the time a claim is made even though Revenue do not require a report to be submitted at this stage. However, they are likely to ask for a report within the four year window for raising an audit. This approach has significant benefits because it makes a good impression with Revenue to submit a report in a timely manner, and it can also be very difficult to prepare a report two or three years after the event. The report aims to answer the 24 point questionnaire that Revenue issue when raising an aspect query.

We have recently prepared the following claims which have been accepted by Revenue Commissioners:

  • Development of multi-instrument access devices for laparoscopic procedures
  • Research in the area of hemato-oncology
  • Development of orthopaedic devices for joint replacements
  • Deducing methods for determining low-level pesticide concentrations in water
  • Development of Machine Vision inspection systems

Is your company missing out on significant corporation tax savings that may be available?

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