How the R&D Tax Credit Works

Understanding the mechanics of the R&D tax credit is crucial to maximising its financial benefits for your business. Ireland’s tax credit system encourages companies to invest in innovation by reducing their tax burden or providing refunds for qualifying research and development activities.

What Are R&D Tax Credits Worth?

With the R&D tax credit, your business could claim back up to 42.5% of your R&D costs!

The R&D tax credit allows companies to claim either 25% or 30% of eligible R&D expenditure. This is on top of the standard corporation tax deduction of 12.5%, making the total tax benefit equivalent to up to 42.5% of qualifying spend.

The difference in rates is down to your accounting period:

• 25% for accounting periods beginning before 1 January 2024
• 30% for accounting periods beginning on or after 1 January 2024

So, for every €100,000 spent on eligible R&D, a company could potentially recoup up to €42,500 in tax benefits.

Example Scenario

Let’s say your business spent €300,000 on eligible R&D in 2024. Here's a rough estimate of the benefit:

• Tax Credit (30%): €90,000
• Additional CT Deduction (12.5%): €37,500
• Total Effective Benefit: €127,500

This tax relief could be transformative for small and medium-sized enterprises looking to reinvest in product development and scaling, or just give you a little breathing room when it comes to your tax bill.

What Costs Are Eligible?

Eligible R&D costs include:

• Staff costs, including wages, bonuses, and pension contributions for employees engaged in R&D
• Materials and consumables that are used in R&D and not later sold on
• Software licenses and development tools necessary for R&D
• A proportion of utilities directly related to R&D activities
• Third-party subcontractors (limited to 15% of total qualifying expenditure or €100,000, whichever is greater)

You can find more details about qualifying costs here.

How Can You Receive Your Credit?

Revenue recently changed the method with which the R&D tax credit can be claimed. It is now only available in three annual instalments, no matter how you choose to claim it.

You must let Revenue know how you want to receive your credit for each instalment.

Your options are to use the credit as an overpayment of tax, resulting in a reduction in your Corporation Tax bill, or to receive it in cash (great for companies strapped for cash!).

There is one more option available to companies that are part of a group; you can choose to surrender the excess to another group company, after offsetting your taxes.

The amounts you can receive, in cash or as an overpayment of tax, are received in three annual instalments:

• Year 1: 50% of the credit (or a lump sum if the credit allows for it)
• Year 2: 30% of the credit (or three fifths of the remaining balance)
• Year 3: 20% of the credit (or the remaining balance)

The lump sum that can be received in the first year depends on your accounting period. You can receive the greater amount, either 50% of your credit or the lump sum:

• Accounting periods beginning on or after 1 January 2023 and before 1 January 2024: €25,000
• Accounting periods beginning on or after 1 January 2024 and before 1 January 2025: €50,000
• Accounting periods beginning on or after 1 January 2025: €75,000

This can be a huge benefit for smaller claimants, who no longer need to wait three years to get their credit. Small claims (between €25,000 and €75,000 depending on the period) can be settled in one go, which is a big helping hand for companies struggling with cash flow.

How Do You Apply For R&D Tax Credits?

Applying for R&D tax credits is actually an easy process; preparing your claim is harder.

We’ve prepared a step-by-step guide to making a robust claim, to ensure that your hard-earned R&D tax credit is not clawed back by Revenue due to a silly mistake.

1. Check whether you need to submit a pre-filing notification form: Some companies (e.g., first-time claimants and those who have not made a claim in the last 3 years) need to let Revenue know that they plan to make a claim. This should be done as soon as possible so you don’t accidentally miss the deadline.
2. Identify Eligible R&D Activities: Are you carrying out qualifying R&D? Your activities must involve systematic investigation or experimental development aimed at scientific or technological advancement.
3. Calculate Eligible Expenditure: Tally all qualifying costs—staff, materials, software, etc.—and allocate them properly. Ensure accurate time-tracking and apportionment where staff have mixed roles, or a cost is used for both R&D and non-R&D purposes.
4. Prepare the Technical Report: This is a document that you’ll retain to demonstrate to Revenue that your R&D was qualifying. You’ll only need to show it to them if requested. The technical report must clearly explain:
• The scientific or technological uncertainties you faced
• The experimental approach taken
• The outcomes and learnings
5. Complete the Corporation Tax Return (Form CT1): The R&D tax credit is claimed through the CT1 return. Include the calculated credit and indicate whether you're seeking a cash credit or a reduction in your tax bill.
6. Await Processing and Payment: Revenue typically processes straightforward claims within a month or two.

When Do You Need To Submit By?

Revenue has a strict deadline for any R&D tax claim. All claims must be made within one year from the end of the accounting period you’re looking to claim for.

For example, a company that completed qualifying R&D within an accounting period running between 1 January 2024 to 31 December 2024 has until 31 December 2025 to make a claim. This is true even if the R&D occurred early in the year.

However, if you are one of those companies that needs to submit a pre-filing notification, you must submit this form at least 90 days prior to making your claim. For this reason, we suggest you start preparing your claim as soon as possible.

Starting early is good practice to ensure that you don’t miss any projects or costs of your claim, as details start getting foggy with time.

Questions? Get in touch!

Myriad has been by the side of many Irish companies, from start-ups to multi-nationals, for years. We handle the nitty-gritty of making an optimised, compliant claim so you can focus on what you do best: innovating.

We’re always happy to talk R&D tax credits. If you have any questions about qualifying projects, eligible costs, or how it all comes together, get in touch with our expert team.