R&D Tax Credit

We’ve written this blog post for new business owners in Ireland who want to know more about the R&D tax credit and how it can benefit their business.

In this post, I’m going to give a quick overview of the R&D tax credit scheme – who it’s for, how to get it and how to apply the credit.

[TL;DR] – Watch the video below ↓ and subscribe to our channel for more great business tips.

What is the R&D Tax Credit?

In a nutshell, it’s up to 25% of the money your company spends on qualifying R&D activities which can be used to reduce its corporate tax bill.

Let me give you a very simplistic example. Your company might be developing novel software, and in year 1 you might spend €50k on research and development. You might also have sales and let’s say your company had a good first year and made a net profit of €100k.

In Ireland, profit is taxed at 12.5%, so you would in theory your company would owe the taxman €12,500.

But the €50k you spend on R&D allows you to claim a credit of 25% of that, so 25% of €50k is also €12,500 – meaning you would not have any tax liability in that year!

You might wonder why the government would allow this? Basically, it is to incentivize research and development in the country.

Who can qualify for the credit?

Any company that engages in R&D activities and also meets the following conditions:

  • the company pays Corporation Tax in Ireland
  • the company carries out qualifying R&D activities (we’ll explore this in more detail)
  • the expenditure on R&D in not being used for a tax deduction in another country

What are qualifying R&D activities?

Your company’s R&D activities must meet particular conditions to qualify for the credit.
The following criteria apply:

  • be in the field of science or technology (think software, electronic devices, energy, engineering, natural resources, food/drink, biotech, pharmaceuticals, and medical equipment).
  • must carry out systemic, investigative or experimental activities (this is basic research, applied research or experimental development).
  • Seek to achieve scientific or technological advancement (advancements can include improving the overall knowledge or capability in the field of science or technology. It cannot be a company’s own state of knowledge or capability advancement alone).
  • Resolve scientific or technological uncertainty (there is uncertainty in the field of science and technology when there is no available basis for a specific goal to be achieved. In other words, there is uncertainty to whether or not a certain goal can be reached by using the current level of science or technology available).

How do you claim the credit?

You have to claim within 12 months of the R&D costs being spent, and this is done while you are completing the company’s Corporation Tax return (before 31st Oct each year).

NB the order of claims is relevant – you need to first fully clear your current year tax liability, then you can clear the year previous to that. If there is some leftover you can then use the credit for future years or claim cash back!

This is really great if you are a startup or SME that is not making much profit yet and need some more cash flow.

Sounds great, can you help?

Definitely – arrange a Discovery Call with us today!

So there you have it – hopefully the R&D tax credits are a little more clear and a little less scary to you. Of course, if you are still boggled by it or just want to make sure it is done right, book a free Discovery Call with us today.

Disclaimer: This guide is for informational purposes only and contains a general summary of taxes in Ireland and is not a complete or definitive statement of specific tax obligations that may arise. Specific accounting and tax advice should always be obtained where appropriate.

Warning: If you invest in this product you may lose some or all of the money you invest.
This marketing information has been provided for discussion purposes only. It is not advice and does not take into account the investment needs and objectives, financial position, risk attitude, liquidity needs, capital security needs and / or capacity for loss of any particular person. It should not be relied upon to make investment decisions.

Mark Sweetman, ACA

Mark Sweetman, ACA

As a Chartered Accountant I've built my experience working within the SaaS and digital technology industries, growing early-stage businesses from the inside. I help digital entrepreneurs understand their companies and ensure they have all the tools they require to succeed and thrive. I love adopting new tech solutions and making use of these to increase efficiency within our clients' businesses.