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Smaller companies and start-ups have been hit incredibly hard by the coronavirus pandemic. Indeed, R&D Tax Credits have proven to be a lifeline for many, but there are fears some are going out of business before their full refunds have been processed. This has led to a number of business leaders pushing for reform.
Any Irish business in any sector can be eligible for research and development (R&D) Tax Credits, providing they have undertaken some kind of research and development project. Qualifying projects must address a specific scientific or technological uncertainty which benefits not just the company itself but the field in which it operates.
Provided by Revenue, R&D Tax Credits can be claimed for a huge range of R&D projects, as long as the company is based either in Ireland or the EEA. It’s a generous scheme too, with applicable R&D expenditure generating a 25% tax credit for offsetting against corporation taxes, over and above the standard reduction at 12.5%. This means that companies can in effect benefit to the tune of €37.50 for every €100 spent on R&D - well worth it indeed.
Companies who don’t have a Corporation Tax liability, either for the current year or the year immediately prior, can also benefit from R&D Tax Credits as three cash payments (one per year for three years).
The refund is limited to:
Companies can also choose to carry forward their refunds until such a time when Corporation Tax liability kicks in.
If this sounds like something your company would benefit from, then take a look at our R&D Tax Credits page for more detailed information.
Many companies are heavily reliant on R&D Tax Credits, especially very small businesses and start-ups that have been battered by COVID-19 - but payments are said to be too slow. The Irish government has therefore been urged to look at introducing temporary measures to help SMEs dependent on R&D Tax Credits to stay afloat.
Earlier this year, Revenue did unveil plans to expedite R&D Tax Credit repayments to free up thousands of euros in cash for businesses struggling with the pandemic. However, many SMEs have complained that this still hasn’t happened, and even just being approved for the scheme can take up to twelve months.
Immediate Revenue pay-out is also being called for. As things currently stand, even once a company is approved and receives its first instalment, the rest takes far too long to follow. If the company then stalls, liquidators are the ones who benefit from the remaining credit - credit which could have saved the company from going under in the first place. Furthermore, it is said that companies are also seeing delays in R&D tax regime improvements, for example the pledge to increase the available credit from 25% to 30%. Additionally, calls are being made to allow companies to benefit from the scheme even if they are yet to start trading.
The prompt processing and payment of R&D Tax Credits is often key to a smaller company’s cashflow. Indeed, if payments are expedited as hoped, it could save many companies going through the expense and hassle of expensive short-term debt.
The international indicator used in measuring a country’s R&D activities is “gross domestic expenditure on R&D” (GERD). This is expressed as a percentage of GDP.
GERD includes all R&D expenditure by government, businesses, not-for-profit organisations and higher-education institutions. The Irish government’s goal has, for several years, been 2.5% (approximately 2% of GDP) by 2020. But of course, COVID-19 came along and turned everything upside down, so there are interesting times ahead.
The fact is that small businesses are the backbone of the Irish economy, and their survival and growth are essential to the country’s economic success. This is particular important amidst the twin earthquakes of Coronavirus and Brexit.
With this in mind, it’s no wonder the government want to encourage growth and innovation which is why the R&D Tax Credits scheme is so generous. The programme actually dates back to the early 2000s but, for various different reasons, R&D Tax Credits are still under-claimed in Ireland. We’ve found this to be because many companies are not aware the scheme exists or they (wrongly) assume they don’t qualify. Others are put off by the rather challenging application process, or simply don’t have the time or resource to complete it. However, it’s these companies that are missing out on potentially tens of thousands of euros.
It’s true that the claims process for R&D Tax Credits is somewhat complex. It’s not simply a case of filling in some government forms and waiting for the money to roll in (if only). In fact, it’s down to each claimant to actively prove their project’s eligibility, to understand Revenue’s strict criteria and to know how each part of the application is put together (see our recent blog Top 10 Tips To Secure R&D Tax Credits In Ireland).
It’s also easy to make a mistake in your R&D Tax Credits application, even if you’ve claimed several times before. One wrong figure can throw your whole claim out, and it’s so easy to miss a relevant piece of information off your technical report. Sometimes this is simply a mistake, and sometimes it’s because applicants simply didn’t know a particular cost was eligible.
Over our two decades in business we’ve seen over-claiming and under-claiming happen all too often, and both can seriously damage your company’s finances. This is why we strongly recommend using a firm of R&D tax specialists like ourselves at Myriad Associates.
Myriad Associates has offices in both Dublin and across the UK. Our team consists of highly skilled R&D specialists and funding advisors all on hand to guide you through your R&D Tax Credits application from beginning to end. We’re also proud of our 100% success rate, so you can sleep easy knowing that you’ve made a highly optimised, watertight claim.
To discuss anything we’ve looked at in this article, or indeed about claiming R&D Tax Credits in general, please do get in touch with us using our contact page. You’re also welcome to call the team on +353 1 566 2001.