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R&D (Research and Development) tax credits were launched in the year 2000 for smaller businesses, with further legislation for larger ones coming into effect two years later. A popular move which has by enlarge remained successful ever since, R&D tax credits have survived the 2008 financial crisis and numerous changes of government.
Indeed, the initiative has remained an enduring pillar of government business policy right up to the present day across the UK and Ireland. Designed to encourage companies to invest in projects that will help them to expand and develop, R&D tax credits act as a strong financial incentive.
Companies are able to either use it to reduce their tax bill or claim cash payable directly to them to help fund their R&D expenditure. The guidance around R&D tax credits is regularly reviewed every four years. In March 2019, Revenue published the latest version of the R&D tax credit guidelines, intended to aid the interpretation of the legislation.
The update contains a number of additional clauses and clarifications which businesses both large and small in Ireland need to adhere to in order to still be eligible for this relief.
There are a number of notable updates which Revenue has made regarding changes in how staff costs and salaries are met as well as which projects will and will not qualify. There is also focus on document handling and on the processes and systems used in making and recording business assessments. Clearly not all aspects of the new guidance will affect all businesses in Ireland in the same way, so for a brief outline of the most salient points we have put together some highlights below.
The latest guidelines offer greater clarity in relation to staff salaries, bonuses and payments. They state that all pay outs made by a company to staff must be put through the PAYE/PREM payroll system, treated as emoluments and apportioned accordingly. In addition, Revenue has announced that there is no longer a requirement to limit expenditure on medical insurance premiums to employees only.
Previous versions of the R&D tax credit guidelines have highlighted the restriction in the ability of companies to make a claim for any subcontracted R&D, apart from activities that had already qualified in their own right. For instance, if a cereal company subcontracts the testing of ingredients for the potential launch of a new cereal bar, this would not have been covered by R&D tax credits as it was considered a routine task typical of this company to carry out. The 2019 version however has relaxed the rules on this, looking at each case on merit, which is a welcome advancement for many businesses looking to claw back some cash.
Unlike in previous versions of the guidelines, a company’s failure to have the correct documents exactly will not necessarily lead to the whole R&D claim being rejected. Instead, R&D tax credit relief can be applied on a project-by-project basis, therefore reducing pressure on a company to produce all of the required documentation up front. Additionally, a prescribed file layout has been suggested for supporting documentation. This is a notable departure from Revenue’s previous directive that companies should not have to maintain documentation over and above what it needs to maintain in order to continue with their R&D activities.
Time sheets and records of work must be maintained accurately in order for projects to be classed as R&D and for tax relief to be applied accordingly. Failure to maintain records properly could mean that Revenue Inspectors seek to disallow claims due to insufficient evidence regarding how staff spend their time.
Since its March update, Revenue has provided some clarification regarding a technical point on how the refund instalments made in cash are calculated if a company’s R&D tax credit claim goes beyond the limit of its payroll tax liability. This essentially means that a company can be in receipt of their R&D tax credit cash refund at the earliest opportunity, again potentially aiding its cash flow.
As mentioned, the above guidance does not represent an extensive list of all Revenue’s changes to the R&D tax credit changes. For a full breakdown of changes, see the Revenue website. Alternatively, please feel free to speak to us at Myriad Associates using our contact page and we’ll be pleased to help.
Around every four years with the previous update taking place in 2015.
Many aspects of Revenue’s latest update have been welcomed by businesses in Ireland. However, some concern has been raised that the updated rules could in fact lead to a decline in R&D investment within small businesses rather than boosting it.
Although the updated guidelines are supposed to make R&D tax credit applications easier to process, some industry figures have given the warning that it potentially puts an extra burden on applicants, especially SMEs. Whilst the guidelines do offer assistance by adding certainty to the application process, clarifying some issues and providing documentation examples to support a claim, conversely the process might still be off-putting for some small companies. This is due to the belief that there will be an increased administrative burden on SMEs and push staff resources to breaking point. In addition to this, it’s worthy of note that businesses who take advantage of the R&D tax credit system are typically small indigenous set ups, with smaller claims than those made by multinationals. SMEs don’t necessarily have the same resources as the bigger players which could discourage them from applying. However, there has been some talk of a further review of the tax credits scheme and the Industry Research and Development Group (IRDG) is hoping that as part of this, Revenue will look at some legal variations for SMEs to make the process easier. Ideally, this would involve reduced administration requirements in that SMEs would not need to scrabble around trying to locate the relevant documentation and proof of evidence thus making these tax credits more accessible to everyone.
Myriad Associates is a team of expert R&D tax and grant funding advisors based at Guinness Enterprise Centre in Dublin. We are world-class R&D tax credit and R&D grant application writing specialists and can deliver intelligent support in all aspects of R&D tax credit claims as well as Enterprise Ireland and Horizon 2020 grant bid writing services.
Offering a fully transparent way of working and customer service that’s second to none, we are here to help you every step of the way.
If you have a question or would like to discuss any aspect of an application for R&D tax credits, please feel free to contact us.