How Is Research And Innovation Supported In Ireland?

One of the key ambitions for the Government’s Innovation 2020 strategy is to boost the amount spent on R&D in Ireland to reach 2.5% of GNP. This is around €5 billion more being invested each year in comparison to 2015. The Government has put together a broad range of incentives and financial supports to stimulate investment led by the Irish private sector. Enterprise Ireland is providing the lion’s share of direct R&D support, offering a variety of different schemes to help businesses with their innovation efforts.

A number of direct supports are on offer, a notable one being the feasibility study grant. This is worth up to €35,000 or 50% of the costs involved in investigating new product development, or in improving existing ones. It can also apply to services or processes in the same way. Additionally there’s also the Agile Innovation Fund which was introduced as a response to the fast pace of change amongst international markets. The fund provides companies financial support of up to €150,000, or 50%, of the costs involved in R&D projects up to a value of €300,000.

In a similar vein, the In-house Research, Development and Innovation (RD&I) Fund offers a maximum amount of €650,000 although it’s primarily aimed at larger projects. Putting a case forward for RD&I support is much more involved than for the Agile Innovation Fund. The level of due diligence required is higher, and the challenges need to be greater.

What else is available?

Further supports are on offer courtesy of Enterprise Ireland which include innovation vouchers to fund R&D collaborations between companies and third-level institutions, plus assistance in obtaining funding from the EU Horizon 2020 programme called “SME Instrument”.

There are also several attractive tax incentives which innovative Irish companies can take advantage of, such as R&D Tax Credits and the Knowledge Development Box (KDB). R&D Tax Credits offer a 25% tax credit for every euro of eligible spending on R&D activities a company incurs. For instance, if it spends €100,000 on an R&D project which is made up of, say, €15,000 on materials used in the R&D activities, €75,000 on salaries and €10,000 on allowable overheads such as utilities, rates and rent etc., then a claim for R&D Tax Credits can be made in its annual tax return of €25,000 to €100,000 at 25%.

The KDB scheme works in a similar way by applying a Corporation Tax rate of 6.25% to income that is the result of licence fees, royalties and insurance from intellectual property. This is a great saving indeed when you consider that the standard rate of Corporation Tax applied to all other income is 12.5%. The calculation is achieved using a formula which takes into account the qualifying expenditure incurred on the asset, together with the profit that relates to it.

The R&D Tax Credit scheme has been very popular across Ireland since its launch in the early 2000s. In its first year of existence, around 73 companies used the scheme - a number which has now rocketed to approximately 1,500 claims every year. In 2009, the Government amended the incentive to allow companies who did not pay tax during an accounting period to receive the credit as cash over a three-year period. A very welcome move, it was a massive help to a company’s cash flow and also meant that businesses could use the relief against the R&D activity costs in their accounts. Overseas multinationals which ran Irish operations were especially pleased, as the amendment reflected the true net cost of completing such R&D activities in Ireland. The knock-on effect of this generally was that companies could more positively compete with other sister locations in attracting mobile R&D investment into the country.

KDB scheme limitations

The KDB financial incentive for R&D came about in 2016 so is still relatively new and its long term effects are therefore largely unknown. A number of companies have taken advantage of the scheme in the three years since, however it is believed to only have limited appeal to indigenous Irish companies that are completing all of their R&D here. This is because it seems unlikely that the budgeted €50 million yearly cost will be incurred.

The R&D Tax Credits programme is also constantly changing with a view to how it could be improved. The Revenue often takes steps to engage with stakeholders to discuss the practical aspects of how the tax relief operates, and to find out where there’s perceived room for improvement. One of the considerations is that the Irish Government should consider bringing in a special R&D Tax Credit programme for SMEs that offers a higher rate of credit of 37.5%, capped at an appropriate level of eligible expenditure. This special new programme could borrow largely from the one already in existence, but with less laborious application requirements. It is hoped that such a measurable, relatively modest cost would provide SMEs and start-ups with an essential cash injection with which they can develop their R&D activities. However, whether the idea is implemented in its entirety remains to be seen.

Looking ahead, it’s abundantly clear that stimulating research, development and innovation throughout the Irish economy requires a multi-faceted approach. It will take commitment, time and a long-term view. For the Irish Republic to consolidate and build on its success requires a constant supply of highly skilled, high quality talent both from Ireland’s own educational system and from abroad. This is vital in maintaining a competitive economy attracting plenty of capital investment, in conjunction with a progressive tax system that recognises risk and rewards investment.

How can the Tax Cloud help?

Submitting a successful R&D Tax Credit claim to the Revenue is often a complex process and mistakes can be very expensive.

Whilst many accountancy firms have some dealings with R&D tax reliefs, here at Tax Cloud (part of Myriad Associates), we specialise entirely in the R&D claims field. This means we can offer the very best, up-to-date guidance so you can be safe in the knowledge that everything is as it should be.

Also don’t forget to try the Tax Cloud calculator. With sections for both businesses and accountants it’s a handy tool designed especially to show companies in the Republic of Ireland what R&D Tax Credits they can claim.

For more information or further advice, feel free to call us on +353 1 566 2001 or use our contact page and we’ll get right back to you.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Jillian Chambers Jillian Chambers Technical Analyst/Writer
Lauren Olson Lauren Olson Technical Analyst Manager
Rabia Mohammad Rabia Mohammad Corporate Tax Associate