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Up and down the Republic of Ireland there are huge numbers of businesses across a broad spectrum of industries that are benefiting from the Revenue’s R&D tax credits scheme. Essentially, the scheme allows Irish companies to claim back some of their research and development costs by reducing their Corporation Tax liability.
Here at Myriad Associates we have many years’ experience in assisting both businesses and accountants with all their R&D tax enquiries. With this in mind, we have put together seven key tips to help boost your chances of R&D claim success.
Just because you may have made a successful R&D tax claim before, don’t assume you’ll automatically be successful again. Additionally, if you’ve received grant funding at any stage, it could affect your tax credits claim if the grant contributed towards any of the project’s R&D-related expenditure.
Don’t take a blasé attitude towards making your claim, even if you’ve done it several times before. Each R&D project is different, procedures and requirements may have changed recently and the application process itself is quite complex so it’s easy to miss something important.
Understanding which parts of your project are eligible for R&D tax credits and which aren’t is a challenging yet essential part of the process. On the one hand, it’s natural to want to maximise your windfall by claiming as much as possible. On the other hand, claiming for things which aren’t covered is a distinct red flag for the Revenue meaning a potential delay to your claim, or worse, a lengthy enquiry.
There are a couple of common mistakes to avoid however. The first one is to always look at the financial year of your company, not the Revenue’s tax year. This is because any expenses that are outside of the financial year you’re currently in will not be eligible for that year’s claim. So it’s well worth double checking that you’re claiming for the correct time frame.
The second thing to remember is that your company directors are very likely to be cross-checked by the Revenue so it’s vital they are named accurately. Failure to declare directors’ details properly could well result in your claim being delayed or denied. Furthermore, it is not possible to claim directors’ dividends as eligible expenditure.
Costs which are covered by R&D tax credits are known as ‘qualifying expenditure’. If you’re not exactly sure whether an element of your project can be claimed for, the best thing to do is pick up the phone and speak to us at Myriad Associates and we’ll be pleased to guide you.
Yes, even businesses operating at a loss can be eligible for R&D tax credits. Generally, it’s more advisable to carry the loss forward so it can be offset against future profits than to surrender it immediately for a lower rate. However, it can only be offset in future years successfully if there is actual profit. So if continued tax losses are likely in future years then surrendering the present loss is the best way forward. Carrying losses can make the procedure complicated, but it could mean an even greater return for the company. However, instead of attempting this yourself we recommend contacting us for help first.
As part of the R&D tax credit application process you will need to submit a technical narrative to describe the work your business carried out and why you believe it’s eligible. This is your chance to shine and really describe in detail the R&D projects undertaken.
Don’t write your narrative from a managerial perspective, but from a technical one instead. It’s tempting to write about non-technical challenges like issues with deliveries or changing user perspectives but these aren’t relevant to your claim. The Revenue simply wants proof that a technical problem was solved or that a technological advancement has been made. Also remember that usually the trickier it was to solve a particular problem, the more likely it is that R&D of some kind took place.
Finally, keep it clear and simple. Longer narratives don’t necessarily increase the chances of a successful claim. Instead, a short, sharp narrative or around 3-5 sides of A4 - without too much jargon - is far preferable. Ultimately, someone at the Revenue has to read and understand what you’ve written, so don’t make it difficult for them. It’s also fine to include details about a project that for technical reasons has failed as this demonstrates to the Revenue that the problem is particularly difficult to solve, even for professionals.
When you submit your technical narrative, make sure that you’re choosing the right project(s) to claim for. The problem is that the definition of a ‘project’ varies depending on the context. This is because what you define as a ‘project’ is basically dependant on the granularity of the detail. In other words, how many parts you divide the project into. As a rule of thumb, go into a level of detail that leaves you with 3-5 projects, and include 1-3 of them (maximum) in a claim. It’s acceptable to cover a single project in your claim, as long as it’s a good presentation of the work that actually occurred.
This is a simple one but very important to highlight as you should relate the length of your technical narrative to the monetary size of the claim. The trick is to go into enough detail but don’t write reams and reams. Just make sure you have included all the necessary detail of a project particularly if it was particularly lengthy, expensive or complex.
Finally, before you submit your claim for R&D tax credit, go through it with a fine tooth comb and triple check that all your calculations are accurate and everything makes sense. Any mistakes can cost you dearly in time and money later on so make sure you spot them now before filing.
Whether you have a question, require some guidance or just need to chat about your tax situation, Myriad Associates has offices in both Dublin and London and our expert team will be pleased to help. Simply call us on +353 1 566 2001 or use our contact form to get in touch today.