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You must split out your R&D and non-R&D costs for a valid R&D tax claim in Ireland. This guide covers staff, software, subcontractors, consumables and more.
Companies claiming Ireland’s R&D tax credit must—first—have a qualifying project and—second—spend money on this project. But what kinds of costs can qualify? How can you make sure you get your full entitlement without going over the line and risking an audit?
To recover up to 35% of your qualifying research and development expenditure, you need to fairly split out your costs between R&D and everything else.
That process of splitting is called apportionment, and getting it right is one of the most important parts of building a robust, compliant claim.
Apportionment means applying a fair, supportable percentage of a cost to your qualifying R&D activity. Very few employees, software licences, or consumables are used exclusively for R&D, so Revenue expects you to include only the portion that genuinely relates to qualifying work.
Revenue requires that any estimates or apportionments are made on a “just and reasonable” basis. That means a clear, consistent method you can explain and evidence if Revenue asks. One of the first questions in an audit is often: where did these numbers come from?
Your methods need to be consistent within each cost category, but they can vary across categories. You can pick whatever apportionment approach best suits your projects, as long as you can defend it.
If you have multiple R&D projects, you should be apportioning your costs across those projects individually, not in aggregate.
The eligible cost categories are:
For a detailed breakdown of what qualifies as R&D under Revenue's definition, see our guide to qualifying R&D activities.
Staff costs are typically the largest component of an R&D claim, often representing 60–80% of the total. Because of that, they're also where Revenue focuses most of its attention during a compliance review.
Revenue is specific about staff costs:
“Where an employee spends an identified proportion of their time “in the carrying on” of qualifying activity, then that same proportion of their emoluments may be considered to be qualifying expenditure.”
Eligible costs include base salary, employer PRSI contributions, employer pension contributions, bonus payments, health insurance (including cover for spouse and children), holiday entitlement, and any other expenses operated through your PAYE/PRSI payroll system. For a full breakdown, see our guide to claiming R&D staff costs.
Common qualifying roles include software developers, data scientists, engineers, scientists, technical architects, product designers, and project managers directly overseeing technical or scientific work. Support roles such as QA testers or lab technicians can also qualify if they contribute directly to the R&D activity.
Since most employees split their time across R&D and other activities, you'll need to apportion their costs by estimating what percentage of their working time was spent on qualifying R&D.
The most reliable way to evidence staff time is through timesheets. If your team logs time against projects, R&D work should be clearly tagged or categorised. Revenue regards contemporaneous timesheets as the best form of evidence. If your business doesn't currently track R&D time this way, it's worth implementing a basic system going forward.
If formal time records don't exist, that doesn't mean you can't claim. Retrospective estimates based on discussions with staff and management are accepted, provided they're credible and consistently applied.
A typical approach looks like this: identify which projects involved technological or scientific uncertainty and therefore qualify as R&D; map which employees contributed to those projects; then estimate, using management interviews, team workshops, or sprint documentation, how much of each person's time was spent on qualifying work.
Those percentages are then applied to each employee's total eligible employment cost. For example, if a developer's total employment cost is €70,000 and they spent an estimated 60% of their time on R&D, the qualifying staff cost is €42,000.
Percentages should reflect individual roles and real working patterns. Applying identical figures across an entire team without good reason is likely to attract scrutiny from Revenue.
For employees who are nearly fully focused on R&D, Revenue introduced an administrative change in Budget 2026 that allows companies to claim 100% of an employee's costs where they spend 95% or more of their time on qualifying R&D activities. This is particularly useful for dedicated research roles, and saves time working out the exact time spent on R&D.
Agency staff are not treated as direct employees for the purposes of the R&D tax credit. Instead, Revenue treats their costs the same as subcontracted work, subject to the cap on outsourced expenditure (more on this below).
However, individual consultants hired on a part-time or short-term basis can be treated as direct employee costs, provided they work under your company's control, on your premises, bring specialist knowledge your in-house team doesn't have, and don't work for you for more than six months.
Revenue looks closely at proprietary directors or persons who control their own remuneration. Payments that are out of step with normal market rates for the role shouldn’t be included; director salaries included in an R&D claim need to be commercially justifiable.
If your company contracts third parties, otherwise known as subcontractors, to carry out work that contributes to your R&D project, those costs are partially claimable, subject to a cap.
When you pay another person or company to carry out qualifying R&D for you, these limits apply:
For unconnected subcontractors, Revenue applies a cap based on your own qualifying R&D expenditure for the same period. The rules are applied separately for payments to universities and institutes of higher education versus other third-party companies.
One important nuance worth noting: the work the subcontractor carries out doesn't itself need to constitute qualifying R&D. For example, a pharma company might contract a third-party laboratory to run stability testing on a new compound. That testing process may be well established and involve no uncertainty on the lab's side. But it still contributes to the pharma company's R&D project, and the cost can be included in the claim.
As with staff costs, the key is to document your reasoning. Keep contracts, statements of work, and invoices that clearly show what the subcontractor was engaged to do.
A company cannot include costs for R&D subcontracted to a connected person (for example, a company within the same group) under the standard subcontracting rules.
Externally provided workers, typically placed through agencies, are distinct from subcontractors. The key distinction is direction and control: an EPW works under your company's direction, much like an employee, whereas a subcontractor typically determines their own methods.
For the purposes of the R&D tax credit, Revenue treats EPW costs in the same way as subcontracting costs. You first estimate what percentage of the EPW's time was spent on qualifying R&D, then apply that to the agency invoice. The resulting figure is then subject to the same subcontracting cap.
The same geographic rules apply: EPWs must be based in Ireland, the EEA, or the UK. For more on how geographic location affects eligibility across all cost categories, see our guide to claiming R&D costs outside Ireland.
Software licences, data licences, and cloud computing costs can all be included in an R&D claim where they are used directly in qualifying R&D activity. The challenge is that most of these costs serve a broader purpose, so apportionment is almost always required.
If a licence is used partly for R&D and partly for routine development, support, or commercial delivery, you need to apportion it.
Common approaches include applying the ratio of R&D staff to total staff who use the software or estimating the percentage of usage time that relates to qualifying activity. For example, if a code analysis tool is used by ten developers, six of whom are working on qualifying R&D, you might include 60% of the licence cost. Otherwise, you might find that your staff spent a cumulative 45% of their time on R&D versus non-R&D, so you apply this percentage to your licenses.
Cloud infrastructure costs (AWS, Azure, GCP, and equivalents) can be included where they are attributable to qualifying R&D.
Project tagging in your billing account is the most practical way to isolate spend by environment or project. Separate development or test environments used exclusively for R&D are the easiest to apportion cleanly.
Costs relating to live or production systems generally don't qualify. It's the compute used in the process of developing and testing that matters, not the infrastructure serving finished products to users.
Consumables are materials used or transformed during R&D. This includes raw materials, chemical compounds, components used in prototyping, and utilities such as power, water, and fuel consumed directly during experiments or testing.
Where consumables are used across both R&D and production or commercial activities, you'll need to apportion them. For materials, the most common method is to track which purchase orders or material batches were allocated to qualifying R&D projects. Production logs and lab records help demonstrate which activities the materials supported. For utilities, an estimate based on the proportion of total effort directed at R&D, for example your R&D staff costs as a percentage of all staff costs, is typically acceptable.
One significant rule applies here. Where it's reasonable to consider that materials used in R&D will result in a saleable product, you need to deduct the lower of cost or net realisable value of those materials from your qualifying expenditure. For a full explanation of this rule, including worked examples from manufacturing and pharma, see our guide to claiming R&D tax credits on consumable items.
You don't need perfect records, but you do need something. Revenue expects to see that your apportionment figures are grounded in real evidence, not guesswork.
For staff costs, the most useful evidence includes contemporaneous timesheets, project management records, technical documentation, and management sign-off on estimated percentages. For subcontractors and EPWs, keep contracts, project briefs, task specifications, and invoices. For software and cloud costs, billing records, project tags, and team usage data help demonstrate the qualifying split. For consumables, purchase orders, lab records, production logs, and contemporaneous assessments of whether a saleable product was anticipated.
For more examples of documentation, see our guide to record-keeping for R&D tax credits.
These are the most frequent errors seen when companies prepare their own apportionments.
Overestimating staff involvement is one of the most common mistakes we see. High percentages across a large number of employees, without strong supporting evidence, raises questions about whether the claim has been carefully prepared.
Not validating estimates with management is another frequent gap. Percentages should be reviewed and signed off by someone with direct knowledge of how each employee spent their time, not just assumed.
Including the full cost of software or licences used for both R&D and routine work is a straightforward error. Even if a tool is essential to your R&D, if it serves a broader purpose, only the qualifying portion should be claimed.
Claiming the full subcontractor invoice without apportioning for non-R&D work is similarly common. Where a subcontractor worked across multiple projects, only the R&D-related portion can be included, and the cap still applies to that portion.
Not keeping records of your methodology is perhaps the most avoidable problem of all. Even if your figures are entirely reasonable, being unable to explain how you arrived at them is a material weakness during a Revenue audit. This is a fraught area, and you should be ready to defend your calculations with evidence.
The businesses that find R&D claims straightforward aren't doing more paperwork. They've built a habit of recording what they're already doing.
If you're working through your apportionments and want to ensure the figures are both defensible and complete, contact Myriad to discuss your specific circumstances.
You must split out your R&D and non-R&D costs for a valid R&D tax claim in Ireland. This guide covers staff, software, subcontractors, consumables and more.
Ireland's R&D tax credit can cover subcontracted R&D costs, subject to a 15% cap and €100,000 floor. Learn the rules, notification requirements, and exceptions.
Consumable items can be included in your R&D tax credit claim, with some exceptions for items later sold and rent.
Please contact us to discuss how working with Myriad can maximise and secure R&D funding opportunities for your business.
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