One of the biggest tax breaks available to companies in Ireland is the Research & Development (R&D) Tax Credit scheme. As in many countries, the government recognises the economic benefits of innovation in science and technology and has long looked to use tax as a lever to drive R&D activity in commerce and industry.
But how exactly do R&D Tax Credits work, and are the incentives enough to encourage your business to invest in R&D projects?
What are R&D Tax Credits?
R&D Tax Credits allow you to boost Corporation Tax deductions based on the amount of money you invest in R&D projects. As capital expenditure, money you invest in R&D is deductible from taxable profits anyway. But under the tax credits scheme, you can deduct a further proportion of qualifying expenditure on top.
As of January 2024, R&D Tax Credits are worth 30% of qualifying investments. This can be further deducted from pre-tax profits for Corporation Tax purposes, or in certain circumstances claimed as a cash benefit.
What are the qualifying criteria?
Who and what qualifies for R&D Tax Credits can be broken down into three categories:
Qualifying applicants
R&D Tax Credits can only be claimed by companies that are subject to Corporation Tax in Ireland. The activity itself doesn’t necessarily have to take place in Ireland – the regime covers R&D projects across the EEA region, as well as in the UK. But companies can only claim the relief in Ireland if they do not qualify for similar reductions in another country.
Qualifying activity
The definition of which projects do and do not qualify under the R&D Tax Credit regime is sometimes summarised as ‘the science test’. The specific criteria states that projects must meet all of the following conditions:
- They must involve systemic, investigative or experimental activities.
- They must be in the field of science or technology.
- They must involve elements of research, whether basic or applied, and or experimental development.
- The aim must be achieving some kind of scientific or technological advancement.
- And there must be an element of resolving some kind of scientific or technological uncertainty or dispute.
Qualifying expenditure
The rules on what kind of costs and expenditures qualify for the text credits are drawn broadly. They include investments in plant and equipment used for R&D purposes, but also the construction or refurbishment of buildings used to house projects. You can also include the cost of any R&D activity outsourced to a third party, up to a limit of 15% of your total R&D investment, or €100,000 in total.
How do I claim R&D Tax Credits?
R&D Tax Credits are claimed as part of your Corporation Tax return. There is a specific version of the CT1 return to use, which must be filed via ROS.
Claims must be filed within 12 months of the end of the accounting period in which the expenditure is incurred. As of January 2024, there is now an additional pre-notification requirement for all new claims, or for any business that has not made an R&D Tax Credit claim in the previous three years. This pre-notification must be made within 90 days of submitting a CT1 return and include qualifying details for the claim.
How much money could R&D Tax Credits save me?
There is no cap on qualifying expenditure that can be used for an R&D Tax Credit claim. But over a certain amount, Revenue does stagger claims over a three year period. Prior to January 2024, the so-called ‘first-year threshold’ was €25,000. So for claims relating to R&D activity in accounting periods that ended before January 2024, businesses can claim credits worth up to €25,000 this year. Anything above that will get spread out over the next two financial years.
After January 2024, the first-year threshold has doubled to €50,000. So businesses stand to get up to this amount back on qualifying R&D spend next year. Anything over and above €50,000, three-fifths of the remaining balance will be paid in the second year after the costs are occurred, with the rest to follow in the third year.
Speak to an expert
If you are looking to take full advantage of R&D Tax Credits, our tax specialists can help you with everything from getting to grips with the eligibility criteria to planning your R&D strategy to preparing your claim. Get in touch to find out more.
