Finance (No. 2) Bill 2026 Published: What Changes for the R&D Tax Credit?

Finance (No. 2) Bill 2026 turns the R&D announcements from Budget 2027 into draft legislation. Ireland's R&D tax credit stays at 35%, but the Bill changes how much of your spend you can include, how quickly you're paid and how the credit interacts with preliminary tax.

This post explains what the Bill actually says, when each change would start and what each one could be worth. It builds on our earlier guide to the Budget 2027 announcements, and it answers a question that guide had to leave open: what counts as a "sufficient level" of expenditure for the 5% wage uplift.

What is in the Finance (No. 2) Bill 2026 for R&D?

The Government published the Finance (No. 2) Bill 2026 on 19 October 2026, and enactment is expected before the end of the year. The R&D tax credit changes sit in section 25 of the Bill, which amends the credit provisions in the Taxes Consolidation Act 1997. Four measures are included:

• Higher subcontracting limits for work outsourced to third-level institutions and unconnected third parties
• A higher first-year payment threshold of €105,000
• A wider preliminary tax offset, covering your second and third instalments as well as your first
• A 105% rule for R&D wage costs, which delivers the 5% uplift announced in the Budget

The fifth Budget measure, which would let a regulated clinical trial satisfy the science test, isn't in the published Bill. More on that below.

When would the R&D changes start?

The main changes apply to accounting periods with a specified return date on or after 23 September 2028. The first accounting period to be affected by these new rules ends on 31 December 2027 (which usually start 1 January 2027). All periods ending after December 2027 will be under these new rules.

A 2026 period, and any period whose return date falls before that, stays on the current rules.

The deadline to submit a claim is one year after the end of your accounting period (either original or by amending your CT1), so you should start considering this from January 2028 for accounting periods ending December 2027.

A small number of technical amendments, including new definitions of "emoluments" and "employee", apply from the date the Act is passed, but they don't change how much you can claim.

How much more subcontracted R&D can you claim?

You can claim on R&D that you outsource to third-level institutions in the EU or in the UK (universities, or other institutes of higher education), or to unconnected third parties. Both categories are currently capped at the greater of 15% of your qualifying in-house R&D expenditure or €100,000.

The Bill changes both caps to the greater of:

• 20% of your qualifying in-house R&D expenditure
• €200,000

The €200,000 floor helps smaller claimants, because it lets you include more outsourced work even when your own R&D spend is modest. The 20% figure helps larger claimants, because the cap grows with your in-house spend.

A food and beverage manufacturer spends €300,000 on qualifying in-house R&D and pays a university food science department €220,000 for shelf-life and sensory trials. Under the current rules, the cap is the greater of €45,000 (15% of €300,000) and €100,000, so €100,000 of the university's fees can be included. Under the new rules, the cap is the greater of €60,000 and €200,000, so €200,000 can be included. That adds €100,000 of qualifying spend, worth €35,000 of extra credit at 35%.

A software company spends €2,500,000 on qualifying in-house R&D and pays an unconnected specialist firm €600,000 to develop part of a machine-learning model. Under the current rules, the cap is the greater of €375,000 (15%) and €100,000, so €375,000 can be included. Under the new rules, the cap is the greater of €500,000 (20%) and €200,000, so €500,000 can be included. That adds €125,000 of qualifying spend, worth €43,750 of extra credit.

The Bill changes the figures only, so the other conditions are unchanged. You still need qualifying R&D carried out in house, and you still need to tell your subcontractor in writing that they can't claim the credit for the same work. For the detail on what counts, see our guides to claiming R&D tax credits on subcontractors and university research partnerships.

How does the €105,000 first-year payment work?

Your credit is normally paid in three annual instalments. The first instalment is the greater of the first-year threshold (or your whole credit, if it's lower) and 50% of the credit. The second instalment is 3/5 of what remains, and the third instalment is the balance. Our guide to the three-instalment payment system walks through the mechanics in full.

The Bill raises the threshold from €87,500 to €105,000. Any credit up to €105,000 is therefore paid in full in the first year, and larger credits receive a bigger first instalment. The change stops mattering once 50% of your credit exceeds the threshold, which happens at €210,000.

A company with a €150,000 credit currently receives €87,500 in year one, then €37,500 and €25,000 in the following two years. Under the new threshold, it receives €105,000 in year one, then €27,000 and €18,000.

A company with a €100,000 credit currently receives €87,500 in year one and the remaining €12,500 over the next two years. Under the new threshold, the full €100,000 is paid in year one.

How will the preliminary tax change affect your cash flow?

You can choose to treat an R&D credit instalment as an overpayment of tax and offset it against your corporation tax liability. At the moment, the preliminary tax rules recognise that offset only for your first instalment.

The Bill extends this to your first, second and third instalments. Where you offset any of them, the amount offset reduces the corporation tax figure used to calculate your preliminary tax for that period and for the next one. In practice, you won't pay preliminary tax on liability that your credit has already covered.

A company expects a corporation tax liability of €200,000. It has a €27,000 second instalment and an €18,000 third instalment outstanding from earlier claims, and it offsets both against that liability. Its preliminary tax is calculated on €155,000 rather than €200,000.

This matters most if you're a repeat claimant with a steady corporation tax bill, because the later instalments from earlier years start working for you straight away.

How does the 105% wage rule work?

Budget 2027 described this measure as a 5% uplift to your qualifying cost base, with a condition about a "sufficient level" of expenditure that wasn't defined. The Bill now defines it. Where you pay emoluments to employees who carry out R&D, and those emoluments qualify as R&D expenditure, 105% of that amount is treated as qualifying R&D expenditure.

The condition is that you must also have incurred other trading expenditure that isn't R&D expenditure, such as rent, insurance and administration costs, or staff costs on non-R&D work. That expenditure must be incurred wholly and exclusively for your trade and be deductible in computing your trading income. It must also come to at least 5% of your qualifying R&D wage costs. On our reading of the drafting, the rule is all or nothing: if you fall short of 5%, the uplift doesn't apply at all.

A precision engineering company has €1,000,000 of qualifying R&D wage costs and €120,000 of other deductible trading costs. The condition requires at least €50,000 (5% of the R&D wage costs), so it's met. The company's wage costs are treated as €1,050,000, which adds €50,000 of qualifying spend and €17,500 of credit at 35%.

A start-up has €400,000 of qualifying R&D wage costs, but its only other deductible trading cost is €15,000. The condition requires at least €20,000, so the uplift doesn't apply.

The uplift rests entirely on your wage costs, so the evidence behind your staff cost claim carries more weight than before. Time records and a clear apportionment support both the credit on those costs and the uplift calculated from them.

What about regulated clinical trials?

The Budget announced that the projects with regulated clinical trial could use this regulation to satisfy the science test, reducing the burden of proof for that company. That amendment isn't in the Bill as published, because the technical assessment is still being completed, and it's expected at Committee Stage.

If you're involved in regulated trials, keep documenting your role in the trial from the outset, because it’s likely you’ll still need to show your own contribution.

What should you do now?

Nothing changes in your claim until the Act is passed, hopefully later this year, and the main R&D changes then apply for accounting periods with a 31 December 2027 year end.

This is a good moment to compare your subcontracting spend with your in-house R&D spend and see whether the new caps would bring costs into your claim that are currently excluded. It's also worth checking whether your other deductible trading costs would clear the 5% test for the wage rule.

The Bill is still passing through the Oireachtas, and Committee Stage amendments are expected, including the clinical trials measure.

Key takeaways

• The rate stays at 35%. The Bill improves how the credit works rather than raising the headline percentage.
• The main changes start with the 2027 period for most companies. They apply where the return date falls on or after 23 September 2028, applicable to accounting periods ending 31 December 2027.
• Subcontracting limits double at the floor. Both caps move to the greater of 20% or €200,000, which matters most if you work with universities or specialist firms.
• Smaller claims are paid sooner. Credits up to €105,000 are paid in full in the first year.
• Later instalments can reduce preliminary tax. Second and third instalments from earlier claims can now be offset, not just the first.
• The wage rule has a defined test. You need other deductible trading costs of at least 5% of your R&D wage costs to benefit.
• Clinical trial rules will be updated later. The proposed changes are expected at Committee Stage.

If you'd like to understand how the Finance (No. 2) Bill 2026 affects your own claim, or how to structure your subcontracting to use the new limits, don't leave it to chance. Contact Myriad to discuss your position.