25% tax credit for research and development
The R&D (Research and Development) tax credit is a valuable tax-based incentive that aims to encourage companies in Ireland to invest in R&D.
This 25% tax credit is for companies who carry out R&D within the European Economic Area.
Effectively, for every €4 of R&D you conduct, your business keeps €1 of the corporation tax due. Nonetheless, the credit does not affect the 12.5% corporation tax deduction.
How do I claim R&D tax credit?
Your claim for R&D tax credits must be made within 12 months from the end of the accounting period in which the R&D money was spent.
The tax credit is primarily available for the current year’s Corporation Tax liability or for the previous year’s corporation tax liability.
Generally, a claim is made through a company’s corporation tax return, which we provide through our small business packages.
It’s worth noting that tax credits are available as cash refunds. This is particularly attractive to startup companies or SMEs who are not yet making profits: the credit can effectively part-fund the R&D activity, acting as a valuable source of cash-flow for your startup.
Are you a startup performing a lot of research?
Then according to Revenue, a company may qualify for the R&D Credit if:
• It is within the charge of Corporate Tax in Ireland for a company trading in Ireland
• It carries out qualifying R&D activities in Ireland or the European Economic Area (EEA)
• The expenditure does not qualify for a tax deduction in another country.
What are qualifying R&D activities?
For you to qualify for the R&D Tax Credit, you must carry out research and development activities that meet particular conditions.
Therefore, the research and development activity must:
• Be in the field of science or technology
• Involve one or more certain categories of R&D (see laid out below)
• Basic research – An example is applied research or experimental development
• Seek to make scientific or technological advancement
• Finally, the activity must involve the resolution of scientific or technological uncertainty
You can learn more about the qualifying R&D activities during our next Startup Webinar.
What does my claim process involve?
During the claim process, there are certain criteria you must meet. For example, to be eligible for the credit, your startup must show that your claim satisfies the following two tests:
- The Science Test: that your activities under review are consistent with the statutory definition of research and development activities, as outlined above.
- The Accounting Test: that your expenditure claim on qualifying research and development activities is correct.
Revenue expects to see the documentation that charts the lifetime of your research project from beginning to end. For this reason, it is important to keep any relevant accounts and records to support your claim. Furthermore, failure to do so may prohibit the process time of your claim.
Does my sector qualify for R&D tax credit?
If you are in one of the four key industry sectors, then you qualify for R&D Tax Credit. These include but not limited to:
Biotechnology, Pharmaceuticals & Medical Devices
• The design and development of new production processes for existing medical devices product.
• The development of new consumer drug formulations and coating techniques.
• The development of new test methods.
Engineering, Energy & Natural Resources
• Financial Services.
• The development of a new fast trading system.
• Advanced mathematical modeling.
• The development of software systems to meet new reporting requirements.
Food & Drink
• The design, development, and integration of a new food processing line
• The development of new products and ingredient formulae
• The development of new flavours for alcoholic drinks.
Software & Electronics
• Software programming relating to processing speed, performance or connectivity
• Wireless and telecoms applications
• Internet security and content delivery.
What additional support is available to me?
In addition to Tax Credit, there are a number of support networks available for your startup in regards to R&D. For instance, these organisations offer a number of direct support mechanisms, including employment and training grants.
They work closely with startups to ensure you have the facilities, resources and supports needed to establish and expand your R&D operations.
An example of one body is Enterprise Ireland
- Enterprise Ireland is a government agency that assists the development of Irish startups that are exporting, or have the potential to do so. They provide direct R&D support to startups and also promote industry and higher education institutes collaboration. For example, their website offers informative articles and links to R&D Revenue grant claim forms, in order to get the R&D claim process started. Also, they provide a variety of grants including innovation partnerships, R&D fund grants, technical feasibility grants, and innovation vouchers.
How can I claim an innovation voucher?
Are you a startup looking for help with research and innovation? Have you a product or service that requires expertise outside of your current R&D capacity? The Technology Gateway Network, along with Enterprise Ireland Innovation Vouchers, can help your startup. The Innovation Voucher scheme is run by Enterprise Ireland and applications are accepted around three/four times a year.
The Innovation Voucher initiative helps develop and build links between Ireland’s public knowledge providers (i.e. higher education institutes, public research bodies) and small businesses like yours. Innovation Vouchers are worth up to €5,000. Ultimately, they can assist your startup in exploring a business opportunity or problem with a registered knowledge provider. However, you can only apply for a voucher during one of the open calls. You can find out eligibility, how to apply and more from New Frontiers R&D innovation voucher capability.
Other support networks
Science Foundation Ireland
SCI is the national foundation for investment in scientific and engineering research. Investing in academic researchers and research teams. Specifically, teams who are most likely to generate leading-edge technologies, new knowledge and competitive enterprises in the fields of science, technology, math, and engineering. For example, the Science Foundation provides funding to researchers to relocate to Ireland from around the world and to Irish based researchers.
KDB-Knowledge development box
In 2016, the Irish Government introduced the new Irish Knowledge Development Box (KDB) regime. Similarly, the UK has their own development programme, which they refer to as the Patent Box.
KBD enables companies and startups to carry out research and development activities in Ireland by granting a favorable tax rate of 6.25%.
Can I apply for KDB?
Essentially, KDB aims to encourage innovative activity. Further, its introduction demonstrates Ireland’s commitment to offering startups a promising corporation tax regime.
For the purposes of the KDB relief, your startup or SME’s annual income from Intellectual Property (IP) cannot exceed €7.5 million and group turnover cannot exceed €50 million.
For instance, the KDB relief will be granted only where your qualifying assets are the result of R&D activities that have been carried out by the business claiming the tax benefit. Therefore, claiming the KDB is the next step for you if you’re already claiming the R&D tax credit annually.
What is a qualifying asset?
Revenue state that a qualifying asset is one that is created from R&D activities such as:
- A computer programme
- An invention protected by a qualifying patent
- Also, an IP for small companies which are certified by the Controller of Patents as patentable, but not patented
R&D enables startups to reduce their operating costs and increase their cash flow. Thus, allowing them to recruit targeted hires and increase margins.
Above all, tax incentives are fundamental for nurturing your startup and allowing it to progress.
Are you in the process of preparing an R&D tax claim credit?
If so, contact us to receive advice on the following stages;
• Firstly, a feasibility study
• Secondly, if you need detailed preparation of claim
• Thirdly, if you are submitting an R&D tax credit claim to Revenue
• Finally, if you are at Audit preparation/support stage
Do I have to be a Limited Company to avail of R&D?
Yes, being a limited company is a requirement to avail of R&D tax credits and innovation vouchers. If you haven’t registered your company yet, take some time to find out how to register a limited company in Ireland.