Claiming Research And Development Tax Credits

In Ireland

The costs of research and development may be eligible for a tax credit if your company invests in innovation. Any type of company, in any industry, can claim the Research and Development Tax Credit if it has engaged in qualifying activities.

The gross domestic expenditure on R&D” (GERD), which is expressed as a percentage of GDP, is the international indicator used to measure R&D carried out in a country. All R&D spending by businesses, higher education institutions, government, and non-profits is included in GERD. GERD in Ireland was 1.05 percent of GDP in 2017 but the government wants to spend 2.5 percent roughly 2 percent of GDP by 2020. To ensure that Ireland has a growing, exporting, indigenous enterprise base, we need more small businesses to innovate sooner.

The R&D tax credit dates back to the Taxes Consolidation Acts of 1997, but it is underutilised in Ireland for a variety of reasons. This could be due to a lack of awareness on the part of businesses, or it could be due to the fact that the process is fairly complex, and the definition of research and development in this case is quite broad.

Revenue is in charge of administering the R&D tax credit. Qualifying research and development activities in Ireland or the European Economic Area can be claimed by Irish companies. Qualifying R&D expenditures result in a 25% tax credit that can be used to offset corporation taxes, as well as a 12.5 percent tax reduction. This means that companies conducting qualifying R&D can claim a total refund of €37.50 from Revenue for every €100 spent on R&D.

The tax credit can be applied to the current or previous year’s corporation tax liability, and it’s in addition to the corporate tax deduction that would otherwise be available. R&D tax credits must be claimed within twelve months of the end of the accounting period in which the R&D was carried out.

If a company does not owe any taxes in the current or previous year, it can request a cash repayment of R&D tax credits in three equal instalments over a three-year period. The refund is limited to the greater of the corporation tax paid by the company in the previous ten years or the payroll liabilities for the period when the relevant R&D expenditure is made. If you don’t have a corporation tax liability, you can carry the refund forward.

Because each claim must be judged on its own merits, there is no simple list of actions/activities that we can provide. The research and development in question must have a scientific or technological component. This implies that there must be challenges and uncertainties for which field experts do not yet have answers, or for which answers are not readily available. Activities must meet the following criteria, according to Revenue:

  • Involve activities that are systemic, investigative, or experimental
  • Be in the field of science or technology
  • Involve one or more of the following types of research and development: experimental development, basic research, and/or applied research
  • A desire to make scientific or technological progress
  • Involve resolving scientific or technological inconsistencies

Claims must be properly prepared, substantiated, and meet all qualifying conditions. There are requirements for contemporaneous records of staff time spent, processes followed, and so on, so this is something you should consider before you begin your R&D project. It’s much more difficult to do this record-keeping after the fact, so companies typically keep weekly, or possibly monthly, records of R&D project inputs.

Keeping track of the project’s major milestones, such as the dates when key prototypes are built, beta testing, breakthroughs, and roadblocks, adds context to your input records. It’s a good idea to delegate this task to a specific team member, as the quality of record-keeping can make or break a claim.

Salaries and contractor fees are usually the highest costs in a claim. A software engineer, for example, could be working on a new technology or process. A claim can include material costs, overheads, and capital expenditures (plant and machinery, for example, or land and buildings).

As you can see, putting together a claim necessitates more than just technical knowledge. It also necessitates a significant amount of effort and leaves a substantial paper trail. If your claim is approved, you’ll save a lot of money on potentially game-changing technology for your company. Rather than being intimidated, speak with an experienced firm that specialises in these types of claims and can help you maximise your chances of a successful claim.

Our team of professionals are here to help you each step of the way.

Call us on +353 (1) 442 8230, Mob 00353 851477625 email moh@tasconsulting.ie