How is the R&D Tax Credit Paid Out?

Ireland’s R&D tax credit scheme is a favourite among innovative companies, helping them get back up to 30% of their development costs. The R&D Tax Credit, now renamed the R&D Corporation Tax Credit for accounting periods commencing on or after 1 January 2023, can be claimed in multiple ways, depending on what suits the business.

However, knowing how to claim for your entitlement can be tricky, with changes made in 2022 and 2023 affecting the cash credit companies can receive.

Revenue announced an increase in the R&D tax credit rates, a move welcomed by many innovative Irish companies.

• Accounting periods beginning before 1 January 2024: You can claim 25% of eligible costs.
• Accounting periods beginning on or after 1 January 2024: The rate increases to 30% of eligible costs.

Eligible costs remain the same, despite the changes to the scheme.

Revenue will pay your credit in three annual instalments. You must choose how you want to receive the credit for each instalment. You can elect to use the credit, or a portion of the credit, to offset tax liabilities (like corporation tax, VAT, or employment taxes). Alternatively, you can receive the credit in cash from Revenue.

Larger, more established companies will often use the credit to reduce their tax bill. However, startups or loss-making companies benefit more from a cash repayment, which helps with cash flow when it’s most needed.

The amounts you can receive, in cash or as an overpayment of tax, are received in three annual instalments:

• Year 1: 50% of the credit (or a lump sum if the credit allows for it)
• Year 2: 30% of the credit (or three fifths of the remaining balance)
• Year 3: 20% of the credit (or the remaining balance)

The lump sums that can be received in the first year are different amounts depending on your accounting period. You can receive the greater amount, either 50% of your credit or the lump sum of the following amounts:

• Accounting periods beginning on or after 1 January 2023 and before 1 January 2024: €25,000
• Accounting periods beginning on or after 1 January 2024 and before 1 January 2025: €50,000
• Accounting periods beginning on or after 1 January 2025: €75,000

If you choose for the first instalment to be an overpayment of tax, which is then set against your Corporation Tax liability for the accounting period, you must take the offset amount into account when calculating your preliminary CT for that period and the next.

If a company which is part of a group elects to have the tax credit offset against its tax liabilities and some of the credit remains, the company can choose to surrender the excess to another company in its group.

This can be a huge benefit for smaller claimants, who no longer need to wait three years to get their credit. Small claims (between €25,000 and €75,000 depending on the period) can be settled in one go, which is a big helping hand for companies struggling with cash flow.

In some cases, companies can use part of their R&D tax credit to reward key employees. This allows these employees to benefit from a lower tax rate — potentially reducing their effective tax rate to 23%, compared to the usual 40%+ they’d otherwise pay.

This is only an option for companies that choose to treat the credit as an overpayment of tax (either in part or fully); these companies may surrender any excess to key employee(s).

To benefit, employees need to spend at least 50% of their time on qualifying R&D activities.

This option helps companies attract and retain top talent and provides key employees with tax savings. It’s a win-win for innovative teams!

Even if your company hasn’t started trading yet, you can still benefit from Ireland’s R&D tax credit.

If you’ve incurred R&D expenses before officially starting to trade, you can claim those costs within the accounting period in which you first start trading. This setup is especially helpful for startups, allowing them to recover some early investment and maintain cash flow while getting their business off the ground.

Your claim is submitted through your Corporation Tax Return, or CT1. You’ll need to declare how you want to claim the credit and, if it’s your first claim or your first in a while, you’ll need to submit a pre-filing notification. Companies need to submit their claim within 12 months of the end of their accounting period.

However, companies need to be aware of potential audits from Revenue and ensure they have the right evidence of their R&D available for review.

If you’re not sure how to make your claim in the most effective way, get in touch with our team. At Tax Cloud, our team is made of tax and technical experts. We keep on top of the changes to legislation so you don’t have to.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud