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Has your company recently undergone innovative research and development work? Perhaps it has created a new product, or updated an existing one to make it better/more marketable? Then R&D Tax Credits could well bring the kind of financial boost your company has been waiting for.
Ireland's research and development (R&D) Tax Credits scheme has been hugely popular and very beneficial to companies across the country, from SMEs to multinationals. Having first been unveiled via the Finance Act 2004, it offers a sizeable tax break to companies undertaking R&D activities with the aim of helping offset the costs involved. The credit can in fact represent a 25% refund of the expenditure incurred. Additionally, R&D expenditure is also allowable as a reduction in Corporation Tax, so in effect the deduction stands at 37.5% of an organisation’s tax liability.
Companies that have made a loss don’t miss out either. In this case, where the credit due exceeds the current and previous year’s tax liability combined, companies can apply to receive the credit as a cash refund from Revenue instead.
Generally speaking, the only restriction in receiving a cash refund is that it must not exceed the PAYE/PRSI submitted to the Revenue by the company in the last two years, or the liability for Corporation Tax for the 10 years preceding, if higher. Alternatively, companies can choose to surrender part of their credit to ‘key employees’ by way of a reward. These key employees can then benefit from a reduction in their effective rate of income tax, as long as certain conditions are met by both the individual and the company.
Key employees must have performed 50% of their work time on specific R&D - that’s the big thing here. They are not allowed to be current directors of the company, or have a material interest in the company above 5%. Additionally, this mechanism cannot be used to reduce an employee’s effective tax rate below 23%.
Although open to any company in any sector or industry, to be eligible for R&D Tax Credits an organisation’s innovative projects must make an advancement in either engineering, technology, natural sciences, medical sciences or agricultural sciences. Furthermore, within these disciplines there are three categories of activity which businesses may undertake; experimental development, basic research or applied research. In essence, eligible activities must look to resolve a specific technological or scientific uncertainty, and to make an advancement. Relevant examples would include creating or updating a new product, process or service, developing a new material or advancing various types of packaging to be more sustainable for instance.
In order to get the most out of a company’s R&D tax credit, it’s vital that all expenditure is identified and correctly included in a claim. Qualifying R&D expenditure can be as a result of a range of costs, for example salaries, raw materials, subcontractor costs or investment in machinery.
Where an organisation has received grant assistance (or it is due to receive it) then this amount will need to be taken off the money spent out on the R&D work. This is because a business is not considered to have incurred the expenditure once it has received this assistance.
Revenue audits are well worth avoiding. Essentially, the Revenue is within its rights to ask questions about any aspect of an R&D Tax Credit claim if it thinks something doesn’t quite add up. It can even do this up to four years after a company has filed its tax return.
The worrying thing for companies is that the number of Revenue audits triggered by an R&D Tax Credit claim are increasing. If the Revenue tells a company of its intentions to begin an audit, it needs to give 14 days’ notice of its wish to make a voluntary disclosure.
How significant a penalty will be is dependent on many factors, including the amount of tax owed, the history of the company’s tax affairs and the category of tax default. Businesses have the right to appeal the results of any Revenue audit, as long as they do it within 30 days.
By making your application in conjunction with a highly experienced team of R&D tax credit specialists such as ourselves, you drastically reduce the likelihood of a Revenue audit and the stresses and costs that come with one. This is why it’s so important you speak to us from the outset, the claims process is not particularly straightforward and mistakes are common.
Wrong - and this is a common misconception.
The reality is that many Irish SMEs will carry out R&D work, including the creation of new or improved products, tools, machinery or manufacturing processes. This work would likely therefore make them eligible for R&D Tax Credits.
Indigenous Irish SMEs in manufacturing, construction, food and agriculture and engineering, as well as in the pharmaceutical and technology sectors, are very likely to have undergone relevant R&D work. However, unfortunately many are not taking full advantage of the credit they are entitled to, and in our experience this could be for a number of reasons. Usually it’s because a company isn’t aware of the scheme, doesn’t realise their R&D work is eligible, or has concerns about various aspects of the application process. The complexity of the application and the risk of any Revenue audits are also notable factors in not claiming. This is a real shame, as they could well be missing out on thousands of euros.
At Myriad Associates we work every day with Irish companies looking to make a claim for R&D tax credits. It’s all we do, and that makes us experts in our field. With offices in Dublin as well as in the UK, we will assist with all aspects of R&D tax claims, whatever the size of your company or the industry it operates in.
Call us today on +353 1 566 2001 or feel free to leave us a message using our contact form and we’ll get right back to you.