How Do I Claim Staff Costs for R&D Tax Credits in Ireland?

Claiming for staff costs in your R&D tax credit claim is crucial; they typically represent 60-80% of most R&D claims, making them the single largest component of your claim. Getting it wrong means that you could be missing a huge amount of your entitlement.

Ireland's R&D tax credit scheme offers a 30% credit on qualifying expenditure, rising to 35% after Budget 2026. For a company spending €500,000 on qualifying R&D staff costs, that's a potential credit of €150,000 (or €175,000 looking forward).

What Staff Costs Qualify for R&D Tax Credits?

The "Wholly and Exclusively" Test

Not every cost associated with employing someone qualifies for R&D tax credits. Revenue applies a strict test: costs must be incurred “wholly and exclusively” in carrying on qualifying R&D activities.

Revenue’s R&D Tax Credit Manual states:

The R&D credit is available in respect of expenditure incurred wholly and exclusively—

1. in the carrying on
2. by it (the company)

of qualifying R&D activities.

This means eligibility relates directly to the extent of an employee's deployment to, and actual engagement in, qualifying R&D work. If your software developer spends 60% of their time resolving scientific or technological uncertainties and 40% on routine maintenance work, only 60% of their employment costs qualify.

The key principle is time-based apportionment. You're not claiming for having R&D staff on the payroll, you're claiming for the time they actually spend doing qualifying R&D work.

What Employment Costs Can You Include?

Once you've established that an employee is working on qualifying R&D activities, you can claim a proportion of their total emoluments. According to Revenue's guidelines, qualifying emoluments include:

• Base salary
• Pension contributions (both employer and employee)
• Bonus payments
• Health insurance (including cover for spouse and children)
• Holiday entitlement and public holidays
• Any other expenses operated through your PAYE/PRSI payroll system

The important point here is that these costs are apportioned based on the time spent on R&D. If 70% of an employee's time qualifies, you claim 70% of all these costs, not just their base salary.

What Costs Don't Qualify?

Revenue is clear that overhead costs associated with employment don't qualify, even if they're related to R&D staff. Costs you can't include are:

• HR department costs
• Payroll processing costs
• Canteen or staff facilities costs
• Recruitment fees
• General office overheads

While these costs may be incurred "in connection with" or “in support of” your R&D activities, they're not incurred "in the carrying on" of those activities – a crucial distinction. Only direct employment costs that can be apportioned to qualifying R&D work are eligible.

While they act like employees, agency staff are not to be included in your staff cost categories; instead, they are treated as subcontractors (more on this below).

How Do You Calculate Allowable Staff Costs?

The Time Apportionment Method

The calculation itself is straightforward once you've tracked your employees' time properly. Where an employee spends an identified proportion of their time carrying on qualifying R&D activity, that same proportion of their total emoluments may be claimed.

Here's Revenue's own example from their manual:

60% of an employee's time is spent carrying out qualifying R&D. The employee's salary is €80,000.

• Cost of employee salary: €80,000
• Employer contributions (pension, PRSI etc.): €15,000
• Health insurance costs (for employee, spouse and children): €2,000
• Total cost of employment: €97,000
• Allowable costs for R&D credit (60% of €97,000): €58,200

Notice how the percentage applies to the total employment package, not just the base salary. This is where many companies undervalue their claims by focusing only on gross pay.

Time Tracking: What Methods Work?

Your apportionment method needs to be "just and reasonable," but Revenue doesn't mandate a specific approach. Best practice is contemporaneous timesheets, but other methods can work depending on your business.

For detailed guidance on different time tracking approaches and what Revenue accepts, see this article on timesheets for R&D tax credits in Ireland.

Whatever method you use, it must be:

• Contemporary (recorded at the time, not reconstructed later)
• Consistent across your business
• Clearly linked to specific R&D projects

Revenue expects to see evidence of when timesheets or apportionments are created, who reviews them, and how you identify the qualifying elements of each project.

What About Special Employment Situations?

Agency Staff and Consultants

Agency staff create a complication. Because they're not on your payroll, Revenue treats their costs in the same way as subcontracted work, subject to the 15% or €100,000 limitation on outsourcing (whichever is greater).

However, individual consultants can be treated as direct employee costs if all these conditions are met:

• They work under your company's control and direction
• They work on your company's premises
• They contribute specialist knowledge your in-house team doesn't have
• The engagement doesn't go beyond six months

If a consultant meets these criteria, their costs can be included in your staff costs calculation rather than counting against your subcontracting limit.

Seconded Employees

If you have employees seconded to your company from elsewhere, their costs can qualify as direct employee costs provided:

• They perform their duties in Ireland
• They contribute specialist knowledge to your R&D project
• Your company bears the cost of their employment

The same time-apportionment principles apply; you claim based on the proportion of time they spend on qualifying R&D activities.

Directors and Controlling Persons

Revenue takes special care with proprietary directors or persons who control their own remuneration. Payments to controlling persons "significantly out of step with the normal emolument practice of the company" aren’t regarded as eligible expenditure.

In practice, this means director salaries need to be commercially justifiable and consistent with what you'd pay a non-director employee in the same role. If your Technical Director's R&D work would justify a €120,000 package for an employee, that's fine. If their package is €300,000 and only partly justified by market rates, Revenue may challenge the claim.

What Records Do You Need to Keep of Your Staff Costs?

Revenue's manual is explicit about what records you need to maintain. For staff costs, you must be able to provide:

• Details of personnel involved in each R&D project, including their qualifications and experience
• The amount of each person's time allocated to qualifying R&D projects
• Methods and bases of apportionment for all expenditure

What Time Tracking Systems Work?

The good news is that Revenue accepts both paper-based and electronic records. What matters is that your system reliably captures who worked on what, and when.

Acceptable approaches include:

• Formal timesheet systems (daily or weekly)
• Project management software showing task assignments and time allocation
• Electronic records from collaboration tools, provided they clearly identify R&D work
• Lab notebooks or research journals with time records

For smaller-scale projects using agile methodologies where qualifying and non-qualifying work happens simultaneously, Revenue accepts that project managers should apportion staffing costs "in a manner that appropriately reflects the balance of effort."

The key is that records must clearly indicate who created them and when. Digital timestamps are acceptable, but they need to show the records weren't created retrospectively.

Surrendering the Credit to Key Employees

One often-overlooked aspect of Ireland's R&D tax credit scheme is the ability to surrender part of your credit to "key employees", an attractive incentive for retaining your most important R&D staff.

A key employee is someone who meets all these criteria:

• At least 50% of their duties involve "the conception or creation of new knowledge, products, methods and systems"
• At least 50% of their employment costs qualify as R&D expenditure
• They're not, and have never been, a director of your company or an associated company
• They don't hold more than 5% of your company's shares
• They're not connected to anyone who is a director or material shareholder

How the Surrender Mechanism Works

For claims made for accounting periods from January 2023 onwards, you can surrender the "excess" of your R&D corporation tax credit (the portion that remains after offsetting against your tax liabilities).

To surrender part of your credit to key employees, your company must:

1. Specify that the R&D corporation tax credit, or a portion of it, is to be treated as an overpayment of tax
2. Specify the amount (in excess of your tax liabilities) to be allocated to each key employee
3. Notify each key employee in writing of the amount surrendered to them

The amount you surrender can't exceed your corporation tax liability for the accounting period. The key employee can then claim the credit in the tax year following the tax year in which your accounting period ends.

This can be particularly valuable for startups and growing companies where cash is tight but technical talent is critical. Instead of paying a higher salary, you're effectively sharing the benefit of the R&D tax credit with the people who made it possible.

Getting Your Staff Costs Claim Right

Staff costs are the foundation of most R&D tax credit claims, but they're also where Revenue focuses its attention during compliance checks. The "wholly and exclusively" test isn't flexible; costs either qualify or they don't.

Your time tracking system doesn't need to be perfect, but it needs to be contemporaneous, consistent, and clearly linked to your R&D activities. Whether you use formal timesheets or another method to allocate your time, the records need to exist when Revenue asks for them, not when you're scrambling to prepare a claim.

Remember these key points:

• Only time spent on qualifying R&D activities counts, not just having R&D staff employed
• You can claim all emoluments (salary, pension, bonuses, benefits), not just base pay
• Your apportionment method must be "just and reasonable" and recorded at the time
• Agency staff usually count as subcontracting, but individual consultants may qualify as direct employees

If you're unsure whether your current time tracking approach meets Revenue's requirements, or you'd like help maximising your staff costs claim, get in touch with our team. We can review your documentation and ensure you're claiming everything you're entitled to while staying fully compliant.