Do I Have To Spend My R&D Tax Relief On More R&D?

Over the years, research and development (R&D) Tax Credits have been of huge benefit to companies large and small across Ireland. Designed to help meet the costs of innovation investment and growth, the scheme offers money back on an organisation’s Corporation Tax bill. This could occur in a number of different ways - typically it may be:

  • Used for offsetting the current year’s Corporation Tax liability
  • Used for offsetting the previous year’s Corporation Tax liability
  • Carried forward for use against the future year’s Corporation Tax liabilities, or
  • Refunded to the company as a cash lump sum

More about R&D Tax Credits in the Republic of Ireland

The R&D Tax Credits scheme is a highly prized tax-based incentive administered by the Irish Revenue. It was put together as a way of encouraging investment in R&D and innovative projects.

The credit works by offering organisations up to 25% of their R&D expenditure back, as long as the eligibility criteria is met. The 25% is in addition to the 12.5% standard rate Corporation Tax deduction.

R&D Tax Credits are available on a massive range of science and technology work, such as engineering, medicine, healthcare devices, software development, food and beverage production, pharmaceuticals, agriculture and financial services.

Who qualifies for R&D Tax Credits?

The incentive is open to any company in any industry. The important thing is that the organisation has carried out development activities with the aim of making an advancement in science or technology. The R&D activities must also contain a level of technical uncertainty which a competent professional can’t easily solve; there basically needs to have been a leap of faith involved. In essence, if your organisation is taking a risk by creating, improving or redesigning a specific product, process or service, then it may well be eligible for an R&D Tax Credits claim.

Still not sure if your project will qualify? The best acid test is to ask yourself if your team faced technological uncertainties right from the beginning of the work. Did you know from the start whether a specific technological goal was achievable? If you can demonstrate that yes, this is the case, then it’s again likely that R&D Tax Credits are coming your way.

What activities can be included in an R&D Tax Credit claim?

In terms of work that would qualify, the following activities would be considered eligible for R&D Tax Credits:

  • Identifying uncertainties
  • Defining technical objectives
  • Feasibility studies
  • Developing, designing and analysing the technology
  • Producing technical specifications or similar documents for explaining and supporting the R&D project and what it achieved
  • Reviewing competing technologies as well as new ones
  • Planning and managing projects
  • Carrying out product/service testing
  • Testing software and fixing any bugs

In addition, there are certain indirect supporting activities that could also be eligible for R&D tax relief, such as:

  • Finance, administration and personnel services that are required specifically for facilitating R&D projects
  • Training to bring about an ongoing culture of R&D

The money sounds great - but what can my company spend it on?

Pretty much anything you like! Once your company has received the relief there’s no requirement to spend it on anything specific. Indeed, what then happens to it is down to the organisation and its current financial position.

Many companies reinvest the money into the business and continue on with their strategies for growth. This means they tend to spend it on buying more materials, investing in more up-to-date machinery, scaling up IT systems, taking on more staff and expanding their operations. Other companies may use the relief to pay off debts or even as dividends - the possibilities are virtually endless.

What are the advantages of company growth?

For many companies, growth helps to foster a successful image and to weatherproof them against future challenges. It brings about new opportunities, entices more customers and generates more profit. However, even with all these positive benefits, expanding means taking risks. Companies should consider very carefully what the pros and cons are around expansion before a growth strategy is pursued.

One of the biggest competitive advantages business growth has to offer is the change to take advantage of economies of scale. As a company increases its production output, it can then reduce its costs per unit achieving some worthwhile savings across:

  • Overheads - by spreading your administrative, staffing and running costs across a larger output. In other words, you’re doing more with the same outlay
  • Purchasing - obtaining discounts for buying in bulk
  • Marketing - by spreading promotional costs across larger sales

Organisational growth can also allow a business to:

  • Increase its stock and resources
  • Reach more customers
  • Expand into different markets
  • Generate more sales, followed by profits
  • Reinvest money back in
  • Influence market pricing
  • Reduce external risks, for example from market conditions, technology improvement or from competition

Business growth can also give the impression of extra financial viability. Financial institutions will frequently regard bigger businesses as being more stable and credible than their smaller competition.

How can Tax Cloud help?

Devised for both businesses and accountants in the Republic of Ireland, Tax Cloud is an online portal that provides businesses with excellent value expert guidance when making their R&D Tax Credit claims. Not only it is very easy to use, it could save you an appreciable amount of time as well as offering the very best chances of success.

By benefitting from our specialist experience and years of knowledge, you can rest assured that your claim is maximised and accurate. Myriad Associates in fact regularly submits R&D Tax Credit claims that are as much as three times higher than those prepared in-house by accountants with a more generalised skillset.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad Associates helps businesses maximise tax credits and secure R&D grant funds. We specialise in R&D Tax Credits, Enterprise Ireland grants.

  • Submitting R&D tax claims since 2001
  • 100% success rate
  • Over €100m claimed and counting
  • Industry leading specialists
  • In-house technical, costing and tax experts
  • Member of the Research and Development Consultative (RDCC) committee

Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
David Farbey David Farbey MA, FISTC, FRSA Technical Consultancy Director
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
Lauren Olson Lauren Olson MA, MISTC Senior Technical Consultant