Budget 2021: R&D Incentives And Capital Allowances

14 Oct 2020 | 11.11 am

Budget 2021: R&D Incentives And Capital Allowances

KPMG's Damien Flanagan hopes EII scheme can be tweaked to assist startups

14 Oct 2020 | 11.11 am

KMPG partner Damien Flanagan welcomes a review of the Employment and Investment Incentive that will focus on measures such as improved support for startups

Digital gaming tax credit

Following the significant growth which has occurred within the gaming sector over the past 10 years, the minister announced his intention to commence work on developing a tax credit for the digital gaming sector, with a view to supporting qualifying activity from January 2022 onwards.

It is not yet clear what type of credit will be available, what will constitute “qualifying activity”, or how the credit will operate in practice. That said, this is a welcome announcement and we look forward to further developments on how the credit will operate in practice (e.g. aligned to R&D credit or akin to film corporation tax credit).

Knowledge Development Box

The Knowledge Development Box (KDB), introduced by Finance Act 2015, targeted incentivising companies to undertake innovative activities in Ireland by providing for a reduced 6.25% effective rate of tax on certain income that is generated from qualifying IP.

The minister announced an intention to extend the KDB relief scheme for a further two years, applying to accounting periods commencing before 1 January 2023. It is likely that a further extension to the KDB will be considered prior to the next ‘sunset clause’.

Energy-efficient equipment

Accelerated wear and tear allowances are available to companies that purchase certain energy-efficient equipment for their trade. Instead of receiving allowances for expenditure over the standard period of eight years, allowances are granted in full in the year of acquisition.

Recognising the importance of energy efficiency to the green agenda, the minister announced an intention to extend the regime by three years up to accounting periods ending 31 December 2023. Furthermore, the minister announced that the energy efficiency criteria for the scheme will be re-assessed to ensure the categories of equipment availing of the scheme remain appropriate and reflect the most up-to-date efficiency standards.

Employment and Investment Incentive (EII)

Over many years, efforts have been made to streamline the relief and increase its attractiveness to both investors and companies alike, including increasing the investment limits and moving to a system of “self-certification”, whereby companies can self-certify that they qualify for the relief (rather than relying on Revenue pre-approval).

The minister announced that a review of the scheme will be carried out later this year to identify how the scheme can be further enhanced to help the SME sector in the current crisis. The review will focus on measures such as improved support for startups, the potential to attract capital from a broader range of investors and the potential to include energy-efficient projects within the remit of the EII.

This review is much welcomed, as the SME sector has suffered greatly due to the lockdown measures imposed and reductions in consumer spending. We welcome the opportunity to provide feedback to the Department of Finance.

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