Ireland's R&D Tax Relief Scheme: Recent Updates and Key Insights

Ireland has established itself as a prominent global hub for research and development (R&D) due partly to its competitive corporate tax framework and generous incentives. A key driver of the country's robust innovation ecosystem is the R&D tax credit scheme, which furnishes substantial financial assistance to companies engaged in qualifying R&D activities. This scheme allows companies to avail tax credits and deductions for eligible R&D expenditures, thereby incentivising investments in cutting-edge technologies, research, and processes.

Through ongoing efforts to refine the legislation, Ireland has sustained its appeal as a destination for multinational corporations and local enterprises focused on innovation. This article examines recent updates from Revenue concerning R&D tax credits and provides practical guidance for businesses seeking to capitalise on these incentives.

Overview of Ireland’s R&D Tax  Credit Scheme

The R&D Tax Credit Scheme was introduced in Ireland in 2004 to incentivise investment in innovation across diverse industries. Under this scheme, companies can receive a tax credit amounting to 25% of their qualifying R&D expenditures, which can be offset against the company's corporation tax liabilities. This is in addition to the standard 12.5% corporation tax deduction. Here's how it works:

1. 12.5% deduction: A company deducts its qualifying R&D expenses from taxable income at the corporation tax rate of 12.5%.
2. 25% credit: After this deduction, the company is eligible for a 25% tax credit, which can be applied to reduce its overall tax bill further or be refunded over time.

Therefore, the combined effect of 25% credit on top of the 12.5% deduction provides a significant tax benefit.

To learn more  - Visit our dedicated guide to R&D tax credits in Ireland

Recent Updates to Ireland’s R&D Tax Credit Scheme

In response to changing international tax landscapes and business requirements, Ireland has adjusted the R&D tax relief scheme. The Irish government has introduced modifications for the year 2024 to improve the transparency, accessibility, and efficiency of the scheme. This update is anticipated to offer clearer claimant guidelines and simplify the overall claims process. One of the main updates includes the pre-filing notification requirement for R&D Tax Credit Claims under sections 766C and 766D.

Commencing 1^st January 2024, companies seeking to avail of R&D tax credits under Section 766C or Section 766D of the Taxes Consolidation Act (TCA) 1997 must provide prior notification to Revenue. This "pre-filing notification" is obligatory for companies lodging an initial R&D tax credit claim or those that have abstained from claiming within the preceding three accounting periods. The notification must be formally documented as per Revenue's specifications and be lodged no less than 90 days before the R&D tax credit claim. However, if a company has already claimed R&D tax credit or R&D Corporation Tax Credit within any of the previous three years, it will be exempt from this pre-filing requirement. This allows recurring claimants to continue using the scheme without additional administrative steps.

The pre-filing requirement is designed to provide businesses, particularly SMEs, with greater certainty about the eligibility of their R&D activities before they incur significant costs. By submitting this notification, companies can reduce the risk of having claims disallowed after the fact, improving compliance and financial planning.

In the hypothetical scenario, XYZ Ltd aims to claim R&D tax credit for the accounting period ending 31^st December 2024. Since the company has not made any R&D tax credit claims in the past, it plans to submit its claim using the completed Form CT1 by 31st March 2025. More on Form CT1 submissions later. Therefore, according to the new pre-filing notification requirement, XYZ Ltd must provide its pre-filing notification to Revenue by no later than 31st December 2024.

How Does the Pre-filing Notification Work?

The pre-filing notification requires detailed information, including:

1. Company Information: The company's name, address, and corporation tax number.
2. R&D Project Overview: A description of the R&D activities being carried out, including the number of employees involved and the types of projects undertaken.
3. Financial Details: A breakdown of expenditure on R&D activities, including any funding or grants received for the projects.

If a claim is being made under Section 766D, which pertains to expenditure on qualifying buildings or structures used for R&D purposes, additional information must be provided. This includes confirmation of the building's status as a qualifying structure, delineation of the proportion of the building being utilised for R&D activities, and disclosure of any financial assistance received. In both instances, Revenue retains the right to request supplementary information, explanations, or support to authenticate the details provided in the pre-filing notification. This process ensures transparency and adherence to the tax credit claim protocol.

Companies are required to submit the pre-filing notification through the MyEnquiries platform, selecting "Corporation Tax (CT)" as the category and "R&D Pre-filing Notification" as the subcategory. When the company files its Form CT1, it should indicate on the R&D tax credit panel that the pre-filing notification has already been submitted to Revenue. By adhering to these pre-filing requirements, companies can ensure their eligibility for the R&D tax credit while meeting Revenue’s regulatory standards.

Filing a Corporation Tax Return Using Form CT1

In Ireland, companies are required to file their annual corporation tax return using Form CT1. This form, submitted through the Revenue Online Service (ROS), is a critical component of the Irish tax system, ensuring that companies provide accurate financial information to calculate and pay the appropriate amount of corporation tax. Form CT1 covers various elements of a company's financial activities, including profits, losses, tax credits, and allowances. Below is a comprehensive overview of Form CT1 and its requirements, with examples illustrating key points.

Key Information Required in Form CT1

Form CT1 is designed to capture a wide range of data from companies, including basic company details and specific financial information relevant to the tax year. Key sections of the form include:

• Company Identification: The company’s name, address, and Corporation Tax Reference Number.
• Accounting Period: The accounting period covered by the tax return, which usually spans 12 months. Companies must provide the start and end dates of their financial year.
• Income and Profits: Details of the company’s total income and profits, including trading income, investment income, and capital gains.
• Deductions and Reliefs: Deductions for allowable expenses, capital allowances, and various tax reliefs or credits, such as R&D tax credits or relief for investment in energy-efficient equipment.
• Tax Calculation: The corporation's tax due is based on the company’s taxable income and the applicable tax rate (currently 12.5% for trading income).

For example, XYZ Ltd has a trading income of €500,000 for the accounting period ending 31^st December 2023. After deducting allowable expenses of €100,000, the company’s taxable income is €400,000. Applying the standard 12.5% rate, the corporation tax due is €50,000 (€400,000 * 12.5%).

R&D Tax Credit Claims on Form CT1

Companies engaged in qualifying R&D activities can claim an R&D tax credit on Form CT1. This credit amounts to 25% of qualifying expenditures on R&D projects. The credit can be used to reduce a company’s corporation tax liability, or if unused, it may be carried forward or refunded in instalments. To claim the R&D tax credit, companies must include specific details in the relevant sections of the form, such as:

• Description of R&D activities: A brief explanation of the R&D projects carried out.
• Qualifying expenditure: Amounts spent on employee salaries, plant and machinery, and other qualifying costs related to R&D.
• Grant Funding: Expenditure must be reported net of any grants or financial assistance received.

Example: XYZ Ltd incurred R&D expenses of €1 million in the accounting period ending 31^st December 2024. However, it received a grant of €300,000 to fund part of the project. Therefore, the net qualifying R&D expenditure is €700,000 (€1,000,000 - €300,000). The company is eligible for an R&D tax credit of €210,000 (€700,000 * 30%), which it can use to reduce its tax liability or receive a refund.

Losses and Capital Allowances

Companies that incur trading losses or have unused capital allowances can use these to reduce their taxable income. Losses may be carried forward or set against profits in the current period. Capital allowances allow companies to claim depreciation on qualifying assets such as plants, machinery, and buildings. For example, XYZ Ltd purchased machinery for €100,000 in 2024 and is eligible for a capital allowance of 12.5%, or €12,500, each year over eight years. This allowance reduces the company’s taxable income, lowering its overall tax liability.

Additional Sections and Declarations

Form CT1 also includes sections for declaring non-Irish income, foreign tax credits, and related-party transactions. If the company has received income from outside Ireland, it may be required to declare this income and claim foreign tax credits where applicable.

Submission Deadlines and Compliance

The deadline for submitting Form CT1 is generally nine months after the end of the company’s accounting period. For instance, if a company’s financial year ends on 31 December 2023, its Form CT1 must be filed by 23 September 2024 to avoid late filing penalties. Failure to submit Form CT1 on time can result in penalties and interest charges. For example, if XYZ Ltd misses its filing deadline by two months, it may face a penalty equal to 5% of the tax due (up to €12,695) and interest on the unpaid tax.

Supporting Documents

While Form CT1 itself does not require supporting documents to be submitted, companies should maintain thorough records and financial statements to support the information reported. Revenue may request these documents for audit purposes, including iXBRL financial statements, where applicable. For companies making an R&D tax credit claim, this means maintaining detailed records of R&D activities, costs, and any grant funding received. Companies claiming capital allowances should keep records of asset purchases and depreciation schedules.

How to Submit Form CT1

Form CT1 must be filed electronically through the Revenue Online Service (ROS). Companies must log into ROS, complete the relevant sections of the form, and submit it before the deadline.

Conclusion

To mitigate potential disappointments or setbacks, it is imperative for companies to ensure that if they are contemplating submitting an R&D claim for the first time or have not done so in some years, they perform the necessary pre-filing notification to Revenue. Additionally, filing Form CT1 is an essential responsibility for companies operating in Ireland, ensuring compliance with corporation tax regulations. Accurate and timely submission of the form, including relevant claims for R&D tax credits, losses, and capital allowances, helps companies optimise their tax position while avoiding penalties. By maintaining proper records and following the required steps, businesses can meet their tax obligations efficiently and use available reliefs and credits.

How Myriad Can help

In order to foster growth and innovation, it is important to understand the intricacies of R&D tax credits. If you require assistance with claiming R&D tax credits, our informative articles can keep you up to date.

Myriad also boasts a team of dedicated specialists in R&D tax matters. We recognise the complexities involved in making a tax credit claim, and our team possesses the expertise to assist you at every stage.

Should you wish to commence your R&D tax claim, please contact us at 0207 118 6045. Additionally, our R&D tax calculator is available for you to assess potential savings for your innovative project. We look forward to speaking with you soon.