What is the Revenue's "Science Test" for R&D tax credit?

It’s no secret that businesses across the country are under more pressure than ever before. With a huge range of challenges to contend with, it’s a constant battle to stay afloat. But merely treading water will not maintain a company’s viability long term; it needs to stay competitive, gain a niche edge and - of course - always look for ways to boost cash flow.

For many businesses, growing and expanding their operations is the result of research and development (R&D) projects. Some companies naturally undergo more R&D than others, particularly those in medical, engineering or technical industries like pharmaceuticals and aerospace. But the desire to thrive and grow is not merely the preserve of large multinationals or those in highly specialised, technical fields. Smaller companies and start-ups have just as much requirement to grow and thrive as the larger ones - more so perhaps. However, finding the money to invest in R&D work can be incredibly difficult, especially where technical or scientific research and testing are concerned; this is where R&D Tax Credits come in.

Revenue funding for growth

Offered by the Irish government since the early 2000s, R&D Tax Credits were launched as an incentive to help businesses meet the costs of R&D. The tax credit works by offsetting part of a company’s Corporation Tax liability and is calculated at 25% of eligible expenditure spent on R&D work. This credit is also offered in addition to the usual Corporation Tax deduction of 12.5%, making it a very worthwhile 37.5% in total. In using the credit for offsetting the current or preceding year’s Corporation Tax liability, the company will achieve an excess, creating a cash refund. Alternatively, the company may choose to carry the tax credit forward for use against future tax liabilities.

Who will qualify?

The R&D Tax Credits scheme in Ireland is not only very generous but is available to any company of any size. It’s also open to all industries, not just the obvious ones like pharmaceuticals. As long as the company has made a specific piece of scientific or technological progress in their field, for example created or improved a new product or system or made an efficiency, then the work will likely be eligible.

What costs can be claimed? 

Again, the good news is the scope of costs that can be claimed is very broad. Typically the main pieces of expenditure R&D Tax Credits cover will be essentials like salaries, wages, overtime payments, raw materials, employer NICs, employer pension contributions and overheads such as fuel and electricity. This is where it can get tricky however, as only the specific portion of the fuel/overhead that’s been used up solely in R&D work can be claimed. This means that if any electricity/materials/fuel is used up in non-R&D work, or usual day-to-day business activities, then it must be discounted from your claim. This also applies to subcontractor costs and any expenditure on plant and machinery; it can only be in relation to R&D work specifically if it’s to be included in a claim.

It’s for this reason that R&D specialist tax advisors such as ourselves exist. Although the scope for claiming is large, and it’s open to all sorts of different businesses and business costs, the process of teasing out exactly what can be claimed for is not easy. Identifying the different types of R&D expenditure and accounting for them correctly can also be a massive headache, which again is where our expert team at Myriad Associates can help.

So what is the ‘science test’?

The science test is the list of criteria which the Revenue has set out to determine if a company’s costs are eligible for R&D Tax Credits. In order to pass the test, the innovative R&D work must be in a scientific or technological field, and must also involve a level of experimental, investigative or systematic activity. It’s all about breaking new ground and not simply making an advancement that benefits your company alone; it must instead be relevant to the field in general which your business operates in. 

The work itself also needs to address a specific scientific or technological uncertainty which must not be easily solvable by another qualified professional with the relevant knowledge. Essentially there must be a real ‘difficulty’ about the work, and no guarantee that the problem in question will actually be solved. In fact, another big advantage of R&D Tax Credits is that the credit can still be claimed even if the project was ultimately abandoned or failed.

What are some good examples of projects where R&D Tax Credits could be claimed?

As we’ve mentioned already, the scope of activities that may be eligible for R&D Tax Credits is huge. For Ireland, companies that have claimed previously include those in the medical and pharmaceutical industries, as well as those in agriculture, manufacturing and IT.

By way of typically accepted examples for R&D tax credit, this would include things like designing a new tool or piece of software, enhancing a product or process that already exists, making an advancement in packaging or reducing a company’s impact on the environment. These are just a handful of examples to give you an idea.

Why work with Myriad Associates on your R&D tax credit claim?

Receiving the most relevant, comprehensive advice from a team of R&D tax credit experts such as ourselves can make all the difference when it comes to a claim. With 20 years’ experience in the R&D tax credit field, at Myriad Associates we know exactly what can be included, where the pitfalls lie and how to maximise the amount you’re owed. We’ll also navigate you through the complete claims process, and make sure you don’t fall foul of any Revenue criteria.

With bases in both Dublin and the UK, our friendly R&D tax specialists, technical advisors and accountants are on hand to get you started. Simply call +353 1 566 2001 or use our contact page and we’ll get right back to you. You can also find out more on our R&D Tax Credits page.