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The 2023 budget changes to R&D tax credits in Ireland make them more accessible and beneficial for businesses of all sizes.
In Ireland, the government has recently announced changes to the R&D tax credit system that are set to come into effect in 2023. As a result, businesses conducting research and development activities can expect to see a significant boost to their bottom line.
But what exactly are R&D tax credits, how do they work, and who is eligible to claim them?
R&D tax credits are a type of tax relief designed to encourage businesses to invest in activities that contribute to their innovation and growth. While many countries offer this tax relief, Ireland has been recognised as a world leader in this area, offering one of the most extensive R&D tax credit programs globally.
The credit works by allowing businesses to reduce their corporation tax bill by a percentage of their qualifying expenditure on R&D activities. Qualifying expenditure includes expenses such as wages, materials, and software development costs.
In Ireland, businesses of all sizes and industries are eligible for R&D tax credits, provided they meet certain criteria. To qualify, a company must have a corporation tax liability in Ireland and demonstrate that their project meets the necessary criteria for R&D. The project must aim to achieve a relevant advance, involve scientific or technological uncertainty, and follow a systematic approach to resolving this uncertainty.
The changes to the R&D tax credit system coming into force in 2023 are a positive development for businesses in Ireland. The government's renewed focus on innovation and investment in R&D will drive growth and create new job opportunities across the country. So, if your business is engaged in R&D activities, it is worthwhile exploring how these changes can benefit you and help fund your future innovations.
The 2023 budget changes to R&D tax credits in Ireland are a significant development for businesses of all sizes, as they provide more accessibility and benefits.
Under the new rules, claimants will now receive the credit over three years in three instalments, regardless of your corporation tax position. If your claim is over €50k, you'll receive the refunds on a 50%: 30%: and 20% split. And for claims below €50k, you'll receive the refunds a bit earlier.
To comply with international tax regulations, the R&D tax credit must meet the criteria of a "qualified refundable tax credit". This means that it must be fully refundable within four years. To achieve this, the restrictions on the refundable portion of the credit related to payroll taxes have been removed. Furthermore, the new law requires companies to make a "valid claim" before Revenue can process any refund or offset.
As of the Finance Act 2022, there are additional reporting requirements that must be fulfilled when making an R&D tax claim. These requirements involve detailing the breakdown of R&D expenditure within the tax return.
Furthermore, the Act introduced a change that allows pre-trading companies to reap the benefits of refundable tax credits, rather than relying on non-refundable credits to carry over into future tax years. Stay compliant and gain greater financial flexibility with these updates to R&D tax regulations.
Effective 1st January 2023, new accounting rules will be enforced. But companies can breathe a sigh of relief as they have plenty of time to pivot from the old to new rules. The transitional period allows companies to choose under which scheme they claim - old or new. Depending on their fact pattern, businesses can benefit from a cash flow perspective by selecting the right option. For instance, by choosing to claim under the new rules during the transitional period, companies can receive cash refund instalments from prior years.
However, it is important to note that companies that were previously able to offset their R&D tax credit against their corporation tax liability will no longer be able to do so.
Overall, the 2023 budget changes to R&D tax credits in Ireland are designed to support businesses, particularly those undertaking innovation activities. Businesses should explore these changes and take advantage of these adjustments to save money, drive innovation and create better economic outcomes for themselves and their communities.
If you would like to discuss anything we’ve mentioned in this article, or about R&D funding options for companies across Ireland, simply use our contact form or call us on +353 1 566 2001.