Are only big businesses eligible for R&D Tax Credits?
Has your company recently engaged in research, development or innovation? Then this one’s for you.
R&D Tax Credits have been around for several years now but many businesses still haven’t heard of them and could therefore be missing out on a serious cash injection.
In a nutshell, R&D Tax Credits are a Revenue-backed tax incentive that was put in place to encourage businesses to invest in innovation. They do this by offering companies the chance to claim back a percentage of the money it has spent out on R&D as tax credits. Many business owners wrongly assume that their business is too small (or too new) to be eligible for financial help in the form of R&D Tax Credits, but this is purely a misconception. Likewise, many large companies are missing out because they think it’s just something for start-ups and SMEs to take advantage of - again, not true.
With economic pressure building on all Irish companies in recent years, plus the looming spectre of a no-deal exit by the UK from the EU, it’s more important than ever for smaller businesses to take full advantage of any financial help they can get.
So what exactly are R&D Tax Credits designed to cover?
If a business spends money on research and development projects, these activities could well be eligible for R&D Tax Credits. The credit is calculated at 25% of the eligible expenditure and can be applied to a company’s Corporation Tax (CT) payment thus reducing the liability. If a business has offset current CT liabilities, as well as the liability for the previous year, it can make an application for a credit to be paid in instalments.
An Irish business may be eligible for R&D Tax Credit relief if:
- It pays Corporation Tax in the Republic of Ireland
- The R&D expenditure it makes is not eligible for a reduction in tax liability in another country
- Its qualifying R&D activities are carried out in Ireland or the European Economic Area (EEA)
What business activities can qualify for R&D Tax Credits?
To be able to claim R&D Tax Credits, a business must conduct research and development projects that meet the following criteria. The R&D activity must:
- Be in the technology or science sphere
- Involve investigative, systemic or experimental work
- Require an element of research, be it basic or applied
- Seek to make a technological or scientific advancement
- Aim to resolve a technological or scientific uncertainty
How does a business make a claim for R&D Tax Credits?
Irish businesses should use the Revenue Online Service (ROS) to claim the credit on their CT return.
Companies must also make sure that all necessary requirements are met before applying. The R&D Tax Credit manual gives plenty of up-to-date guidance on which activities qualify and the types of expenditure that will be eligible for the credit.
What expenses can a business claim R&D Tax Credits for?
Businesses can claim R&D Tax Credits on anything that has added to their operational costs in the course of their R&D activities. However, companies generally cannot claim for capital expenditure (money spent on fixed assets such as buildings, land and warehousing facilities).
Revenue expenditure may include the following costs which can be added to your R&D claim:
- Staff costs
- Contracted and subcontracted R&D
- Workers that have been taking on externally, for example agency workers and temps
- Payments made to people volunteering for clinical trials
- Consumables, for example lighting and heating costs
Additionally, larger companies are allowed to include contributions to particular individuals or research organisations where eligible R&D work took place.
What staffing costs can be included in an R&D Tax Credits claim?
Regardless of the size of your business, applicable staffing costs include:
- Salaries before tax (including wages, cash bonuses and overtime pay)
- Certain reimbursed company expenses
- Employer NI contributions
- Employer pension contributions
Any benefits in kind, for example company cars, crèche facilities and private medical cover are not considered staff costs in this context. Director dividends must also not be included in an application for R&D tax relief, even if directors have spent time on R&D activities.
The Revenue also recognises that some directors or employees will be wholly engaged in R&D projects, although staff generally split their time between R&D and their other work requirements. It is up to the applicant to decide what proportion of their total staffing costs should be allocated to R&D based on the time spent on R&D activities. There are several ways of doing this which we would be happy to explain to you.
The R&D tax relief scheme for SMEs
The Irish R&D Tax Relief scheme is designed for companies employing a maximum of 500 people. Company revenue must be under 100m euros and its balance sheet should be no more than 86m euros. Up to 33% of R&D costs may be offset against a business’ Corporation Tax, or this can be taken as a cash sum in certain circumstances.
The R&D tax relief scheme for larger companies
There is also a scheme for larger companies known as RDEC. To qualify, businesses must have 500 or more employees, a balance sheet of over 86m euros and revenues of at least 100m euros. The relief itself can be worth approximately 8% of expenditure on R&D activities.
What’s the time limit for an R&D Tax Credit claim for Irish businesses?
Businesses must claim the R&D Tax Credit under Section 766 (qualifying activities) within one year of the end of the accounting period in which the R&D expenditure took place. However, this time limit does not apply to money that was spent on structures such as buildings (Section 766A).
Do you have a question relating to R&D or need further advice?
We understand that navigating the process around making an R&D Tax Credit claim can be daunting at best. With offices in both Dublin and London, our team is made up of tax advisors, accountants and Revenue specialists who are all on hand to help, so you know you’re getting straightforward, accurate R&D guidance.
Get in touch with the Tax Cloud team to discuss your R&D projects by calling +353 1 566 2001 or use our contact form.
Also, don’t forget to try out our Tax Cloud calculator so you can see at a glance exactly how much a claim could be worth to your Irish business.
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