Irish Corporation Tax Continues To Be A Mainstay Of Government Revenues

Government figures show that the Irish economy has prospered overall throughout this year, despite the backdrop of Brexit and political uncertainty. Just last month, the Irish Exchequer published a report which showed that Ireland could well record a budget surplus in 2019. Across the first three quarters of this year, the Irish Republic recorded a €2.9 billion Exchequer deficit in comparison to last year’s €3.8 billion deficit during the same time frame. It is in fact €2 billion (38%) less than the government expected. This improved financial position has been the result of a healthy tax revenue take (2% ahead of profile and up 9% year on year) and lower spending levels (1% behind profile and up 6% year on year).

The Exchequer has also benefited from strong Corporation Tax revenues. Throughout September of this year, Corporation Tax take amounted to €5.8 billion, €558 million (11%) ahead of pre-year expectations and a 13% increase on last year. Much of the focus on Corporation Tax will again come during the final part of the year, as tax coffers swell around now due to the submission of tax returns. Other notable revenue gains came as a result of a €15.7 billion income tax take (up 8% year on year) and VAT returns increasing by 6% year on year to €12.3 billion.

With growth ongoing in these two categories it appears that the economy is continuing to strengthen. However, worryingly capital expenditure, which took the brunt of austerity cuts in spending, is still 4% behind where it should be.

Then of course there’s the issue of Brexit. While October’s Exchequer returns look positive, there isn’t much that the government can do in preparation for a potential no-deal withdrawal of the UK from the EU. Given the boost Corporation Tax take and the Irish economy being at the top end of Euro Area growth for several years, it’s suggested that budget surpluses should have been recorded for the last three years plus. This would put Ireland in the best position to weather possible external storms.

What is crucial - and remains to be seen - is the financial approach by the Exchequer if a no-deal Brexit does in fact happen. The uncertainty brings about a sizeable margin of error, although the Budget will be set assuming economic growth of 0.7% in 2020 even if a no-deal Brexit plays out.

So where do R&D Tax Credits fit into this?

For many years, the government has recognised that research and development (R&D) is hugely beneficial, not just for individual companies but to the country’s economy as a whole. However, it recognises that the costs involved can be high and often act as barrier to innovation, especially for smaller companies and start-ups.

In order to help with these costs, the government launched the R&D Tax Credits scheme in the year 2000. Administered by the Revenue, the credit offers Irish companies a reduction in their Corporation Tax bill of up to 25% of their R&D expenditure. The benefit is received either as a tax credit, or as a cash payment (subject to certain conditions being met). The 25% credit is available in addition to the 12.5% Corporation Tax deduction at the standard rate, meaning an effective overall benefit of 37.5% - a generous amount in anyone’s book.

What exactly is R&D?

When a company spots a gap in the market or a problem to be solved and starts looking at potential solutions, it will very likely develop a new product, service or process. Alternatively it may work towards updating an existing one. Furthermore, work may be undergone to extend the company’s knowledge within a particular field; all of this is what’s referred to as R&D.

R&D tax relief is typically available for R&D projects carried out across a very broad range of technological and scientific areas. These include engineering, software development, medical devices, pharmaceuticals, financial services, food and beverage production and agriculture.

What activities can qualify as R&D for tax relief purposes?

The Revenue stipulates that R&D work must seek to ‘advance technology or science’ and attempt to resolve a particular level of uncertainty. Put simply, if your company is taking risks in working to develop something that will advance the technological or scientific knowledge in your field, and there’s been some trial and error involved, then it’s likely to be eligible. Work could include:

• Building or developing new products, processes, systems or services
• Adapting and enhancing existing products, processes, systems or services
• Projects that are successful in their goal, as well as those that fail

And what R&D costs will qualify?

R&D Tax Credits can help with R&D costs that are occurred right from the start of a project all the way through to the end of its “uncertainty” (i.e when testing is complete). This includes the costs associated with:

• Staff: Wages, overtime payments, employer pension contributions and NIC payments
• Subcontractors: Agency staff, freelancers and subcontractors
• Utilities used up in the R&D process: For example lighting, heat and power
• Software: Bespoke software developed specifically for your company’s R&D activities
• Raw Materials: This could be ingredients, electronic components or chemicals for example

Why use Myriad Associates?

Put simply, the team at Myriad Associates are experts in R&D tax relief. We can help you prepare your current or retrospective R&D Tax Credit claim and ensure you maximise your claim. Our tried and tested methods are second to none, and we have many years’ R&D tax relief experience behind us.

Myriad Associates will work with you to achieve a maximised and successful claim, plus we’ll be happy to answer any questions you may have along the way. Call the Dublin-based Myriad Associates office today on +353 1 566 2001 or use our contact form and one of the team will get back to you.