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Credit where credit is due

Your company may be eligible for an R&D tax credit of up to 25% on your expenditure

Is your company liable to Irish corporation tax and undertaking work which is directed at producing new, improving existing, or planning incremental developments to materials, products, devices, processes, systems or services?

  • If the answer is yes, then your company may be eligible for an R&D tax credit of up to 25% on your expenditure.
  • What’s more, the R&D tax credit is available in addition to the normal trading deduction for the expenditure. 

Qualifying expenditure is expenditure incurred by the company in the carrying on of qualifying R&D activities and includes staffing costs, materials, consumables, plant & machinery, overhead costs and subject to certain restrictions, costs incurred to third parties or universities. Qualifying activities must be undertaken within the European Economic Area and qualifying expenditure must be supportable by purchase documentation and be net of grant assistance or any other assistance.

In addition, where a company incurs costs in constructing or refurbishing a building or structure that qualifies for industrial buildings allowances and will be used for the carrying on of R&D activities, then a portion or all of those costs may be eligible for R&D tax credits. The R&D activities carried on in the building or structure must, over a 4 year period, represent at least 35% of all activities carried out in the building or structure. The R&D tax credit of 25% is based on the portion of the building used for R&D activities.

The R&D tax credit can be offset against current year corporation tax liability. The excess R&D tax credit can be carried back and offset against corporation tax paid in the previous year. Any remaining tax credit can, subject to certain restrictions, be paid to the company by Revenue over a 33 month period. The R&D tax credit is generally claimed via the company’s corporation tax return. The R&D tax credit claim must be made within 12 months from the end of the accounting period in which the expenditure giving rise to the claim was incurred. 

As part of its target of achieving a level of expenditure on R&D of 3% of the EU-wide GDP by 2020, the EU has set Ireland a target of 2.5% of GDP to be spent on R&D in Ireland. Furthermore, in the Department of Finance Review of the R&D Tax Credit Scheme, the Government stated its commitment to maintaining the R&D tax credit scheme. Undertaking R&D often involves significant cost, availing of R&D tax credits has the potential to reduce the cost of undertaking R&D and increase profit margins. Therefore is it time you considered are you getting the credit where credit is due for the R&D you are undertaking?

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