R & D Tax Credit

I own a small business which has begun to invest in Research and Development (R&D).  As a result of this I believe my company may now be entitled to an R&D tax credit. Can you please advise me as to the benefit and availability of this credit? 

Firstly I would like to congratulate you on the innovation you have shown in introducing R&D into your business activities. In these challenging times, it is imperative that all business owners look at how they can best advance their operations and R&D is a key area to be considered in this regard.

As well as the potential commercial benefits of successfully undertaking R&D work, Irish tax law now provides a further incentive with regards to any work undertaken in the form of the R&D tax credit of 25%, available on all qualifying R&D expenditure.

While the availability of a tax credit for qualifying research and development expenditure has been in place for a number of years, many companies continue to ignore their entitlement to this credit. The definition of what can be termed as Research & Development (R&D) is far broader than what business people realise and consequently tax credits are not being claimed due to a lack of awareness. Given the potentially large tax savings available in this area, it is essential that all companies should now consider the availability of this credit to them.

The common misconception is that the Research & Development Tax Credit is only available to large companies, which employ scores of scientists in white coats, working in high tech laboratories. As a consequence of this the R&D tax credit is not being claimed by smaller companies, such as your own, due to a lack of awareness.

In reality the tax credit is available to any company, big or small, which can demonstrate that it is engaged in systematic, investigative or experimental activities in a field of science or technology; this would include sectors such as engineering, agricultural sciences, medical sciences or natural sciences. The R&D which is being carried out must be basic research, applied research or experimental development and must seek to achieve scientific or technological advancement and involve the resolution of scientific or technological uncertainty.

For example, a company may look to combine different materials in order to achieve cost efficiencies in the production process. There may be uncertainty as to whether the new mix will achieve the desired result, thus requiring R&D to determine the most appropriate mix. To the extent that the new mix results in scientific or technological advancement, R&D is likely to have been carried out.

A key point for consideration is that it doesn’t have to be successful. Once the intention is to achieve advancement or to remove uncertainty, then the company is entitled to claim a credit. It is worth noting the 25% R&D tax credit is in addition to the standard corporation tax deduction, thus resulting in a potential overall tax benefit equivalent to 37.5% of all qualifying R&D expenditure incurred.

This large tax saving allied with the possibility of claiming a cash rebate from Revenue, where the company has no corporation tax charge against which the R&D credit can be claimed means that all companies should now review their businesses for any possible R&D expenditure. Following a recent review undertaken of a client’s operations, we discovered that our client had incurred expenditure on qualifying R&D activities in the region of €250,000. As a result of our review, that client is now in a position to claim a refund of circa €62,500 from the Revenue over the next 3 years, as a consequence of the availability of this tax credit.

Expenditure which may qualify for the credit includes, plant & machinery, fixture & fittings, building costs (separate treatment applies), raw materials, director, staff costs and sub contracted R&D costs (subject to certain restrictions). I would now urge you to consider professional advice in relation to any such expenditure incurred by your business, as the significant benefits of claiming an R&D tax credit may now be available to your company.