Research and development tax credits
How it works
Many opportunities exist for organisations to optimise their research and development tax credit. If your organisation has overcome technological or scientific challenges to develop new products, processes, materials or services for your own use or your customers’ use, then you may qualify for generous R&D tax incentives.
How does the R&D credit work?
The R&D tax credit system in Ireland is an “incremental” scheme. A company can claim qualifying R&D expenditure in an accounting period, over and above the R&D expenditure which it incurred in the base year of 2003.
The tax credit is 25% of the incremental expenditure spent i.e. €2,500 of every €10,000.
Over recent years the Department of Finance has included a volume based element to the scheme, where initial qualifying expenditure is not linked to the base period. This has been increased by successive Finance Acts as shown in the table below.
|Periods starting on or after||Expenditure excluded from incremental base||Associated Credit|
|1 January 2012||€100,000||€25,000|
|1 January 2013||€200,000||€50,000|
|1 January 2014||€300,000||€75,000|
For R&D expenditure over and above the excluded amount, only the amounts incremental to the base year spend can be claimed.
How can the R&D tax credit be used by my company?
R&D credits can be used in a number of ways, although this does have to be in a certain order.
1(a) R&D tax credits are first used to offset any corporation tax due for the accounting period being claimed or
1(b) The 2012 Finance Act enabled credits received for accounting periods starting after 1 January 2012 to be surrendered to certain key employees.
2. Excess credits can be used to reclaim prior year tax paid.
3. Excess credits received for accounting periods starting after 1 January 2009 can be claimed as cash repayments over three years.
4. Credits can be carried forward indefinitely.
How long does a company have to make a claim?
A company must claim R&D tax credits within 12 months from the end of the accounting period in which the R&D expenditure was incurred.
What type of expenditure qualifies for R&D tax credits?
A company can claim the R&D costs incurred by the company in carrying out the R&D activities in a relevant Member State (EEA). This typically includes:
- The staffing cost of the project team directly undertaking R&D activities.
- Materials and consumables used in the undertaking of R&D activities and non capitalised items.
- Equipment (if this qualifies for plant and machinery capital allowances).
- Sub contracted R&D costs incurred by third parties or universities (subject to certain restrictions).
- An apportionment of overheads such as rent, rates and utility bills incurred in performing the R&D.
What do I need to do to claim R&D tax credits?
The R&D expenditure incurred in 2003 must be evaluated and projected for the year being claimed and must be assessed against Revenue’s criteria for technical qualification and the accounting requirements. The R&D tax figure must be submitted as part of the corporation tax return or an amendment to the return. Revenue requires that a company must maintain documentation which supports the R&D claim. Deloitte Leyton recommend that this is a combination of contemporaneous project documentation and documents summarising the projects claimed.
For further information contact: Andrew O'Reilly T: +353 1 417 2835 or Barry Whelan T:+353 1 417 2868