A Huge Boost for R&D Tax Credits in Ireland

Great news for Irish businesses! Revenue has just rolled out the latest version of its Research and Development (R&D) Tax Credit Guidelines as of July 2023.

Myriad Associates CEO, Barrie Dowsett, warmly welcomes the recent modifications, stating, "This is very positive news for Irish R&D tax claims. In summary, the PAYE cap has been removed and companies get paid more upfront. Additionally, the provision of a transitional period, especially for companies with a 31/12/2022 year-end, offers a choice between the old and new rules. I anticipate most will opt for the new rules, given its clear advantages."

In this article, we briefly summarise the key changes that promise to energise and reward Irish innovation.

R&D Tax Credits - 50% Instalment in Year 1

Regardless of a company’s tax position, the tax credit will be refunded in three instalments over a span of three years.

- Large Claims: Companies with R&D tax credit claims exceeding €50,000 will have these credits refunded in a 50%, 30%, and 20% distribution over three years.
- Smaller Claims: Companies with claims below the €50,000 threshold will get the refunds a bit earlier.

Removal of Payroll Tax Restrictions

The previous payroll tax restrictions have been removed, so the entire R&D tax credit amount is now refundable. The legislation now provides that a “valid claim” must be made by the company before Revenue can process any refund or offset.

Transitional Period

Start Date: The new rules apply for accounting periods commencing on or after 1 January 2023.
Interim Provisions: Prior to the new rules fully taking effect, a transitional phase will be in place, granting companies the discretion to claim under either the existing or the previous set of guidelines, such as claims for the year culminating on 31 December 2022.

Revenue has updated its R&D Corporation Tax Credit Duty Manual to include detailed explanations about:

- How R&D credits will be refunded to companies under the new rules
- How carried forward cash refund instalments may be accelerated

Additional Return to Revenue Required

Given the changes in how the R&D tax credit will be claimed—changing from the direct offset against corporation tax—a new "specified return" has been set by Revenue. This is especially relevant to claims between 1 January 2022 to 31 December 2022) as companies will need to file this "specified return" in conjunction with the corporate tax return.

Inclusion of Cloud Computing Costs

Apart from the changes brought about by the Finance Act 2022, a huge boost for R&D claimants has been the recognition of expenses related to cloud computing. Specifically, such costs are now permissible for R&D claims when exclusively and wholly leveraged for R&D activities.

Revenue outline that “costs incurred by a company on cloud computing are allowable costs for the purposes of qualifying R&D expenditure where those costs are incurred, and to the extent that they are incurred, wholly and exclusively in the carrying on by the company of qualifying R&D activities.

This change is highly laudable, mirroring the evolution in how businesses, especially within the software realm, employ cloud services for R&D ventures.

Get in Touch Today

If you would like to discuss anything we’ve mentioned in this article, or about R&D funding options for companies across Ireland, simply use our contact form or call us on +353 1 566 2001. 

Alternatively, feel free to visit our R&D tax credits page or R&D grants page for more information on these funding options for your qualifying R&D activities.

For a more exhaustive exploration of the changes covered in this article, See the updated Revenue guidance document (PDF, 981KB)