Claiming R&D Tax Credits: Expectations Vs. Reality

Do you have a business in the Republic of Ireland that undertakes research and development activities? If yes, then it could be eligible for financial assistance towards the costs in the form of R&D Tax Credits.

What are R&D Tax Credits and what could they be worth?

The Research and Development (R&D) Tax Credit scheme is administered by the Revenue and is open to Irish businesses both large and small that undertake eligible research and development activities. These activities must take place in Ireland or inside the European Economic Area (EEC) and up to 25% of R&D expenditure can be offset against corporate taxes as well as a tax deduction at 12.5%. This means that businesses involved in R&D can receive a refund of €37.50 for every €100 worth of R&D costs from the Revenue. So in effect, the R&D Tax Credit can bring down the actual cost of R&D by as much as 37.5%.

Tax relief via the R&D Tax Credits scheme can be against the current year’s Corporation Tax Liability or against the year prior. It is also in addition to the Corporate Tax deduction that is otherwise accessible for the expenditure. Applications for R&D Tax Credits must be made inside one year from the end of the accounting period during which the R&D money was spent.

R&D projects can also attract a cash refund. If a business does not have a tax liability in the current tax year or the previous one, it can receive cash in three equal instalments across a three-year cycle. As an alternative, the tax credit can be offset against future tax liabilities. The refund can only be applied to the greater of the corporation tax due by the business in the preceding ten years, or the payroll costs for the period when the appropriate R&D expenditure was undertaken.

As with many accounting and tax issues, R&D tax reliefs aren’t always straightforward and there can be many misconceptions floating around. Here we take a look at some of the assumptions companies make around R&D Tax Credits and look to set the record straight.

Expectation #1: Research and Development (R&D) Tax Credits are only for businesses that invent something completely new.

Reality: Not true. Whilst R&D Tax Credits can certainly be applied to companies that are creating and/or patenting something new, they’re not exclusively for this purpose. Many companies also take advantage of the scheme if they are modifying or improving a product that already exists or are improving a specific process (usually in manufacturing). This could include activities such as making a product faster, cleaner, cheaper or greener or that produces better yields with less waste etc. Businesses across all industries including engineering, architecture, computer software and pharmaceuticals in particular are all good candidates for R&D Tax Credits.

Expectation #2: R&D Tax Credits are only for larger companies

Reality: No, that’s untrue. R&D Tax Credits are open for anyone to apply and a broad range of businesses of all descriptions and sizes can be successful. It’s simply a case of putting together a high quality application that meets all of the Revenue’s criteria.

Expectation #3: R&D Tax Credits aren’t for businesses in my industry

Reality: No. Myriad Associates has many years’ experience in helping all sorts of businesses from across the Republic of Ireland to claim the R&D Tax Credits they are entitled to. These have included technology and engineering firms, right up to architects and more.

Expectation #4: R&D Tax Credits are only for scientific companies with test tubes and labs

Reality: Nope. Whilst businesses engaged in basic research are obvious candidates for R&D Tax Credits, this type of financial help is all about bolstering development in applied science. This could be in solving a production issue or another specified problem using known technical and/or scientific principles. The criteria for R&D Tax Credits is very wide and could include solving problems in the field, on the shop floor or somewhere else on the site - all of these could well be eligible.

Expectation #5: R&D Tax Credits won’t help my bottom line

Reality: Incorrect. Depending on the size of the claim, companies in Ireland can end up receiving literally thousands of euros back either by reducing their corporation tax liabilities or as a lump sum offering a substantial boost to your bottom line. We’re not talking small amounts here!

Expectation #6: It’s all too good to be true - there must be a catch somewhere

Reality: No, not at all. R&D Tax Credits were launched in the year 2000, so they’re certainly well established. Indeed, a massive number of companies have benefited in that time. The most important thing is that the criteria is met and the application is thorough.

Expectation #7: There’s usually some tax reform or other going on so R&D Tax Credits won’t be around for much longer anyway

Reality: Highly unlikely. The Revenue’s R&D Tax Credits scheme is often being adapted, but the essence of what they offer and what they aim to achieve doesn’t change. It’s essentially putting money back into the Revenue’s coffers by helping the Republic of Ireland stay competitive with plenty of jobs and investment. It’s unlikely to be going anywhere soon so don’t miss out.

Expectation #8: Putting together a claim is difficult and time-consuming

Reality: Whilst putting together a claim that is of a high standard and that offers a good chance of success does require some effort, it’s not as complex as many businesses think. The Revenue will ask for proof that the R&D activities undertaken are eligible for the relief and the data that companies provide must be full and correct. Companies also need to put together a case to persuade the Revenue, but essentially it’s simply a question of explaining clearly the R&D projects that were undertaken and why the Tax Credits should be awarded.

How can Myriad Associates help?

Based in both Dublin and London, Myriad Associates consists of a friendly team of R&D Tax & Grant advisors who are experts in all areas of R&D tax relief and grant bid writing for businesses in Ireland and across the UK. Whether you’re a brand new company that’s just finding its feet or you’re a larger, more established enterprise that’s looking to boost its cash flow, why not get in touch with our professional team today to determine your eligibility for an R&D tax credit claim or grant on +353 1 566 2001 or use our contact page.