Research and Development Expenditure – Tax relief
There are new tax benefits available to companies for spending on research and development. The tax treatment in Ireland has changed recently to encourage such spending. We have set out below the tax implications of the old system and the new system.
The old system applied to accounting periods commencing on or before 31st December 2008. The main points to note are as follows;
– The credit is available to all Irish companies who undertake R&D activities within the European Economic Area.
– A credit of 20% is available on all incremental expenditure since 2003.
– Where a company has insufficient corporation tax against which to claim the R&D credit in a given accounting period, the tax credit may be carried forward indefinitely.
– The tax credit is in addition to any allowable deductions for R&D expenditure in the accounts of the company.
– The company is not required to hold the intellectual property rights to avail of the credit.
The new system applies to accounting periods commencing on or after 1st January 2009. The main changes are as follows.
– A credit of 25% is available on all incremental expenditure since 2003.
– The credit can be claimed in a different manner. First of all, the company may offset that unused portion of the credit against the corporation tax of the preceding accounting period.
– Where a company has offset the credit against the corporation tax of the preceding accounting period or where no corporation tax arises for that period, and an excess still remains, the company may make a claim to have the amount of that excess paid to them by the Revenue Commissioners in 3 installments.
– The 3 installments will be paid over a period of 33 months from the end of the accounting period in which the expenditure was incurred. The first installment to be paid will amount to 33 per cent of the excess.
– The remaining balance will then be used to first reduce the corporation tax of the next accounting period and if any excess still remains, a second installment amounting to 50 per cent of that excess will be paid to the company.
– Any further excess will then be used to reduce the corporation tax of the following accounting period and if an excess still remains, that amount will be paid to the company as the third installment.
– There is a limit on the amount of tax credits payable to a company by Revenue. The amount cannot exceed the greater of;
1. The corporation tax payable by the company for the 10 years prior to the accounting period preceding the period in which the expenditure was incurred, or
2. The amount of PAYE, PRSI and levies, which the company is required to remit in the period in which the expenditure was incurred.
What constitutes Research and Development Expenditure?
Essentially only expenditure on Research and Development activities may qualify for the tax credit. Qualifying activities must satisfy all of the following conditions. They must be:
1. Systematic, investigative or experimental activities.
2. In a field of science or technology.
3. One or more of the following categories of research and development.
1. Basic research
2. Applied research
3. Experimental development
4. Seeking to achieve scientific or technological advancement and involve the resolution of scientific or technological uncertainty.
If you think that you may be incurring expenditure that meets the above criteria or are interested in carrying out some research and development please let us know and we can investigate whether you may be entitled to claim relief on the spending.