How to Share Your R&D Tax Credit with Your Research Team

Ireland's R&D tax credit is worth up to 35% of your qualifying expenditure; companies can claim it as either a reduction in corporation tax or, as many companies prefer, as a cash credit. But there’s an extra provision that lets you pass part of the credit directly to the employees who generated it.

Most companies aren't aware this option exists. It's worth understanding, because done correctly, it can be a material benefit for your research team at no additional cost to your company.

What is the key employee provision?

Where your company has more R&D tax credit than it can use against its corporation tax liability, the excess doesn't have to sit as a repayable amount. You can instead surrender some or all of that excess to qualifying members of your research team, who can then use it against their own income tax liability.

The credit is applied against the employee's personal income tax for the year, which means it can reduce the actual tax they owe. The company still receives the full value of its R&D credit; the transfer comes from the surplus that would otherwise be paid in cash or carried forward.

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.

Who counts as a key employee?

Revenue defines a key employee by three criteria, all of which must be met:

• The employee must perform at least 50% of their duties in "the conception or creation of new knowledge, products, methods and systems", and 50% or more of the cost of their earnings from the employment must qualify as R&D expenditure.
• The employee must not be, and must never have been, a director of your company or an associated company, and must not be connected to such a director.
• The employee must not hold, and must never have held, more than 5% of the shares of your company or an associated company, and must not be connected to anyone who does.

In practice, this typically describes a senior researcher, principal scientist, or lead engineer who's doing the qualifying work directly but doesn't have a directorship or significant stake in the business.

The 50% threshold applies to both time and cost. A researcher who spends 60% of their working hours on qualifying activity and whose salary is 60% claimable as R&D expenditure meets both conditions. If either falls below 50%, they won't qualify.

When apportioning your costs, pay attention to your timesheets and estimations to ensure that you can actually benefit from this option. This is an area where your records matter. The same documentation that supports your R&D claim should be robust enough to demonstrate the time split and payroll allocation for each employee you're considering. If a Revenue audit arises, you'll need to show both.

How the transfer works

The transfer only applies to the excess credit, i.e., the portion that remains after your company has offset the R&D credit against its corporation tax liability. The amount you can surrender to employees cannot exceed your company's CT liability in the accounting period.

To surrender part or all of the excess to a key employee, your company must take three steps:

1. Elect, on the Form CT1, that the R&D tax credit (or a specified portion of it) is to be treated as an overpayment of corporation tax.
2. Specify the portion of the excess being allocated to the key employee(s).
3. Notify the employee(s) in writing of the amount being surrendered to them.

The written notification is a requirement. There's no prescribed format, but it needs to state the amount surrendered and be dated. Issue it promptly once the CT1 has been filed.

How can the employee use it?

The employee can claim the credit in the tax year following the tax year in which your company's accounting period ends. Here is what that looks like in practice:

Your company has a 12-month accounting period ending 31 December 2025. The R&D credit is claimed when the Form CT1 is filed in 2026. The key employee can claim the surrendered credit for the tax year 2026, via their personal income tax return for that year. The earliest date they can claim from is 1 January 2026.

Claims are subject to the 4-year time limit. For example, if an employee is first entitled to make a claim in 2026 for amounts surrendered for the 2025 period, then the latest time that the claim can be made is 31 December 2030.

If an employee is no longer a key employee of the company, but remains an employee of that company, they will still be entitled to claim the credit, provided that they a key employee in the accounting period for which the R&D credit was surrendered.

In addition, the credit can only be used against income tax on the compensation from the employer who surrendered the credit. It cannot be offset against income tax due on any other sources of income.

An employee cannot claim the credit if their effective income tax rate for the year of claim, including their spouse’s or civil partner’s income, is 23% or lower both before and after claiming the relief. If their effective rate is above 23% before the credit is applied, they can claim the credit only to the extent that it reduces their effective tax rate to no less than 23%.

If an employee cannot claim their full credit because the credit takes them beyond the effective rate of 23%, they may carry forward the excess. They can continue to carry the credit forward for as long as they are an employee at the company, they pass the 23% effective rate test and their income tax from the company can still absorb the credit.

For example:

Mary has a salary of €80,000 and pays €19,200 in tax. Her effective rate is 24% before considering a surrendered credit of €10,000. With the credit, her effective rate would be 11.5% (€9,200/€80,000). She cannot claim the entire credit in this period; she can only claim the amount that would get her to 23%.

23% of Mary’s income tax is €18,400; the R&D tax credit available to Mary is only €800 (€19,200 - €18,400). The balance of €9,200 can be carried forward to the next period, so long as she continues to meet the qualifying criteria.

Such an employee must, therefore, file a tax return for all years in which he or she avails of a tax credit under the section, and not just the first year of claim. This is particularly relevant to cases where an employee carries forward unused credit from one tax year to the next or following years.

A worked example

Your company had qualifying R&D expenditure of €600,000 in the accounting period ended 31 December 2025. At the 30% rate that applies for that period, the R&D tax credit is €180,000.

Your corporation tax liability for the period is €120,000. After offsetting the credit against that liability, €60,000 remains as excess. You can choose to claim this excess as a cash credit, surrender to a member of your group, and/or surrender to key employees. You choose to surrender €10,000 to your lead research scientist, Ben, who qualifies under Revenue's definition, and €50,000 as a cash credit.

Ben can claim €10,000 against his income tax for 2026. Your company has used €120,000 to eliminate its CT bill for the period, and the remaining €60,000 been split between a cash credit to fund more R&D and a repayment to reward key R&D team members.

In 2025, Ben earns a salary of €140,000 from your company and has no other income. Ben claims the surrendered credit against the income tax due on his 2026 salary.

Because the income tax attributable to Ben’s salary is €43,200, it is sufficient to absorb the full €10,000 R&D credit surrendered by the company.

Ben must also satisfy the 23% minimum effective income tax rate requirement.

The effective rate before the credit is 30.86% (€43,200 / €140,000).

Ben then needs to work out:

• Tax before R&D credit: €43,200
• R&D credit claimed: €10,000
• Tax after R&D credit: €33,200

The effective rate after the full credit is used is 23.71% (€33,200 / €140,000). As the full credit keeps Ben’s effective tax rate above 23%, he can use the entire €10,000 against the income tax on his 2026 salary.

Key takeaways

• Your employee must spend at least 50% of their time in qualifying R&D activity, with at least 50% of the cost of their employment also qualifying. Directors and shareholders with a stake above 5% are excluded.
• Only the excess amount remaining after offsetting against corporation tax can be claimed, and it's capped at the company's CT liability in that period.
• The employee claims in the tax year following the year in which your company's accounting period ends.
• You need to elect on the Form CT1 to treat the credit as an overpayment, specify the amount allocated to each employee, and issue written notification to each one.
• The eligibility criteria for key employees rely on the same time and cost records as your R&D claim. If those records are robust, the rest of the process is procedural.

If you'd like to understand whether your research team qualifies or how to structure the surrender as part of your R&D tax credit claim, contact Myriad to discuss your specific situation.