What projects qualify for R&D Tax Credits in the pharmaceutical industry?
The very generous R&D Tax Credits scheme is open to any Irish company regardless of size or industry. However, due to their technical and/or scientific nature, certain sectors are bigger claimers than others.
In Ireland, the pharmaceutical industry is one of the biggest areas of research and development activity in the world. Despite this, many companies in the sector are still yet to claim the 25% tax credit on qualifying R&D expenditure. And as this is offered in addition to the standard reduction of 12.5%, in actual fact innovative business in Ireland can claim up to 37.5% of their eligible R&D costs back. We did say it’s generous!
How do I know if I qualify for R&D Tax Credits?
To qualify for R&D Tax Credits, your company must be liable for Irish Corporation Tax, have a project which has sought a technological or scientific advancement in its industry where the outcome wasn’t certain from the start.
R&D Tax Credits apply to eligible costs, like wages, materials, overheads, outsourced third parties and even payments to universities, so there is plenty in the pharmaceutical industry which qualifies for R&D Tax Credits.
How does this apply to the pharmaceutical industry?
Drug discovery is one of the largest aspects of the pharmaceutical industry where R&D Tax Credits are claimed. The development of a drug or treatment and its chemical research and further testing is a prime example of R&D in the pharmaceutical industry. Our experience with pharmaceutical companies suggests that most of the qualifying activity for pharmaceutical R&D Tax Credits occurs in the clinical trials of Phase 1-3.
Devices in the medical field often show evidence of R&D. This includes devices for administering drugs or monitoring patients.
Testing methods that are being developed are also eligible for R&D Tax Credits. Although it’s easy to assume that R&D Tax Credits only apply to the final product and not to its manufacturing process, the production and associated activity very much qualify. By using technology to improve efficiency or efficacy of a testing method, a company can be entitled to R&D Tax Credits.
Development and improvement of products, processes or services are often forgotten as aspects of R&D but can yield great results. For example, companies that seek to make a process more efficient, effective or to improve the results of an existing product may qualify for pharmaceutical R&D Tax Credits. This includes improvements like sterility, speed of process or fitness for market (i.e. a sugar-free drug).
Costs that can be included in an R&D Tax Credits claim
These costs aren’t specific to the pharmaceutical industry per se, but they do make up the bulk of the value of most claims.
Employee costs are often substantial so can make a huge difference to claim values. Salaries, Pay-Related Social Insurance (PSRI), company pension contributions, health insurance and bonuses can also all be included. These costs, known as ‘emoluments’, need to be operated through the PAYE/PREM system.
The important thing to note here too is that time should be apportioned, so you only include the amount of time that the employee spent on actual R&D work. For example, if an employee spends 50% of their time simply doing their day job and 50% on R&D work, only 50% can be included in the R&D Tax Credits claim. In the same vein, payroll and HR costs and canteen costs for example can’t be included, as they’re not directly linked to any specific R&D work.
Confused? Get in touch with our team to speak about your R&D tax claim now.
Costs relating to Externally Provided Workers
Any workers that have been enlisted to help with the R&D project will incur costs - these again can be included in an R&D Tax Credits claim. This might be consultancies, freelancers or agency staff for instance, or volunteers for clinical trials.
Bear in mind that the amount you can claim on outsourced R&D work must not exceed the company’s own internal spend. Third-party providers must also be aware that they cannot claim for the work they were contracted to carry out.
Overheads used up in the process of an R&D project can also be included in a claim for R&D Tax Credits. This is things like materials, power and utilities that are used up in the course of the R&D work. However, if the materials are used in creating a prototype, and that prototype is then sold on, the cost of it can’t be included in a claim as you’d be benefitting twice.
Again however, you will need to apportion your overhead costs correctly. Estimating can be tricky, which is why many companies will seek support with this from a specialist R&D tax consultancy.
Rent is one particular place where claimants can come unstuck. This is because the cost of any rental spaces can only be included in an R&D Tax Credits claim if it’s central to the R&D work. So this might be a laboratory or a cleanroom for instance.
Certain software costs can also often be included, again as long as it was specifically designed to support the R&D project.
Does your company operate in the pharmaceutical/medical industry?
The pharmaceutical and medical industries are awash with exciting, cutting-edge new developments that will easily attract R&D Tax Credits. From developing and testing new drugs to creating sustainable packing, even the most apparently run-of-the-mill activities can attract this really lucrative relief.
Although the process may seem daunting, the Tax Cloud portal means you can quickly and easily put together your claim by following the steps. There’s plenty of support on hand along the way too, plus we’ll maximise your claim so you know nothing is left on the table.Why risk missing out on potentially tens of thousands of euros that could be ploughed into further innovation? Find out more about how the Tax Cloud portal compares to the full consultancy service. Then when you’re ready, call us on +353 1 566 2001 for an informal discussion about your claim or contact us to book a free demo.
- 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