R&D Tax Credit Explained
In Ireland, a 30% Research and Development (R&D) Tax Credit is available to companies. The tax credit can be used to offset taxes or can be received as cash.
Since 2004, companies in Ireland have availed of the R&D Tax Credit for their R&D projects. With around 1,600 companies now claiming the tax credit each year, this vital incentive continues to fuel groundbreaking advancements that solidify Ireland’s reputation as a global leader in innovation and technological progress.
SciMet R&D has been assisting Irish companies in claiming their full and proper R&D Tax Credits since 2014. Below we provide an overview of this important incentive and outline the steps you can take to ensure you maximize your tax credit opportunities.
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What is the R&D Tax Credit?
Research and Development is the engine of innovation, driving breakthroughs that benefit society at large. However, R&D is inherently risky and costly. To encourage greater investment in this critical area, Ireland, like many nations, introduced a R&D Tax Credit. By lowering the effective cost of R&D, this incentive aims to inspire more companies to innovate, resulting in advancements that improve our collective future.
Who can qualify?
If you can answer yes to the checklist questions below, you should be considering an R&D Tax Credit claim.
How much can be claimed?
The R&D Tax Credit for accounting periods commencing on or after 1st January 2024 is calculated using the formula:
R&D Expenditure x 30% = R&D Tax Credit
R&D expenditure in this formula is the expenditure incurred by the company wholly and exclusively in the carrying on of the R&D. The types of expenditure often seen in R&D Tax Credit claims include:
- Staff Costs
- Materials, consumables etc.
- Plant & Machinery
- Overheads
- Subcontracting to unconnected third parties
- Subcontracting to Universities
When will we receive the tax credit?
For accounting periods commencing on or after 1st January 2023 a new three-year fixed payment schedule applies under which all companies receive the tax credit in three instalments.
Instalment 1
Equal to the greater of:
A) €50,000 (or if lower, the amount of the tax credit claimed), or
B) 50% of the amount of the credit claimed.
Included on the CT1 for the accounting period in which the expenditure was incurred.
Instalment 2
Equal to 3/5 of the remaining tax credit.
Included on the CT1 for the year following the year in which the expenditure was incurred.
Instalment 3
Equal to the remaining tax credit.
Included on the CT1 for the second year following the year in which in the expenditure was incurred.
For all instalments, the company must specify the amount to be a) treated as an overpayment of tax or b) paid out to the company.
Other FAQ
Claims must be submitted within 12 months of the end of the accounting period in which the expenditure was incurred.
First time claimants and companies that have not submitted a claim in the previous 3 years must give Revenue at least 90 days notice that they intend claiming and supply certain information.
To claim the R&D tax credit for work subcontracted to unconnected third parties, the company must notify the subcontractor in writing that they are not allowed to claim the R&D tax credit for the same work. This notification must be provided either before or at the time of payment. However, if the subcontracted work is carried out by a party that cannot claim the R&D Tax Credit (such as an individual, a non-resident entity without a branch in Ireland, or a recruitment agency providing staff), notification is not required.
If expenditure has been/will be met directly or indirectly by grants or other assistance then it is likely that the expenditure will have to be excluded form the R&D Tax Credit claim. Project expenditure over and above the grant amounts may still qualify for the R&D Tax Credit.
Yes, pre-trading expenditure on R&D can be brought forward and included in the claim for the first accounting period in which the company is considered trading.
If you incur expenditure on a building or structure that is to be used for R&D, a R&D Tax Credit may be available. The tax credit is provided for under a different section of legislation and has its own set of rules.