The accounting test
Latest trends on how to prepare the accounting treatment of R&D expenditure
The R&D tax credit scheme was first introduced by Finance Act 2004. Significant changes have been made to enhance the tax credit since its introduction. The claim environment has also changed as evidenced by a notable increase in the level of Revenue scrutiny.
Section 766 TCA 1997 provides that an R&D tax credit is available in respect of expenditure on R&D activities, other than expenditure on a building or structure. In order to claim an R&D tax credit on such expenditure, it must either be
- Allowable as a deduction for the purposes of tax in Ireland.
- Relieved under Part 8 of the TCA - annual payments, charges and interest.
- Expenditure on machinery or plant that qualifies for an allowance under Part 9 TCA 1997 – principal provisions relating to relief for capital expenditure.
- Expenditure which qualifies for an allowance under section 764 TCA 1997 – deduction for revenue expenditure on scientific research.
- A company is entitled to claim the R&D tax credit in respect of the relevant period as the company meets all the requirements set out in section 766 TCA 1997:
- The company is within the charge to Irish corporation tax.
- The company is carrying on a trade.
- The R&D expenditure was incurred by the company.
- R&D activities were carried out by the company personnel.
- The R&D activities were carried out in a “relevant member state” as defined by the legislation.
- The R&D expenditure incurred is tax deductible expenditure in respect of the trade being carried out by the company.
- The capital items on which expenditure was incurred for R&D purposes qualify for Plant and Machinery (P&M) Wear and Tear Allowances under section 284 TCA 1997. To the extent that P&M has a dual use (i.e. used for R&D and production), its cost has been apportioned on a just and reasonable basis in accordance with section 766 (1A) (a) TCA 1997.
- The company has not claimed the R&D tax credit for any expenditure that is allowable as a corporation tax deduction in any territory other than Ireland.
- Finally, expenditure is net of grants.