Need To Know: R&D Tax Credit For SMEs

01 Jun 2020 | 09.04 am

Need To Know: R&D Tax Credit For SMEs

Insight from Barrie Dowsett at Myriad Associates

01 Jun 2020 | 09.04 am

Barrie Dowsett, chief executive at Myriad Associates, laments the fact too many SMEs are missing out on R&D tax reliefs

Any business that is creating new or improved products, processes, or services should have a serious look at R&D tax credits. If you are undertaking qualifying research and development activities you’re entitled to receive a 25% rebate towards most of your development costs. 

And the good news is that R&D tax credits for SMEs was increased to 30% for accounting periods starting on or after 1 January 2020.

Data released by Revenue shows that €475m worth of R&D tax credits were paid out in 2018, a one-third decrease on 2017 figures. A total of 1,300 companies made a claim during 2018, of which 1,160 came from SMEs. Those businesses received, on average, €110,000 each, with the manufacturing and information and communication sectors, accounting for two-thirds of all claims made.

Businesses with less than ten people account for 92% of all SMEs in the Irish economy and Dowsett feels the statistics highlight that more needs to be done around the promotion of R&D and which businesses can claim.

According to Barrie Dowsett (pictured), who heads up Myriad Associates:  “Many businesses still don’t know about R&D tax credits or simply believe that they don’t qualify. We also find that general accounting practices incorrectly advise their clients that they don’t have any qualifying activities.” 

Both profitable and loss-making businesses can claim R&D tax credits and receive a reduction in their corporation tax liability or a cash credit spread over 36 months. From April, Revenue announced it is expediting R&D tax credit payments to bring about thousands of euros in cash for Irish businesses during the Covid-19 pandemic. 

These changes are very unusual, as Revenue is only legally required to pay cash refunds up to nine months after an accounting period draws to a close. Additionally, for businesses that qualify, this speeding up of payments will provide an essential cash injection right now.

Who is eligible?

Any Irish company in any industry may be eligible for R&D tax credits, provided the company is undertaking development activities that seek to achieve an advance in science or technology.  “If your development team have ‘head-scratching’ moments from the commencement of a project then you are most likely entitled to make an R&D tax claim,” says Dowsett.

What costs are eligible?

The main areas of cost that can be claimed are:

  • staff costs (salaries, company pension contributions, employer’s PRSI, bonus payments, and health insurance)
  • agency workers (externally-provided workers)
  • individual consultants
  • materials used in R&D or prototyping
  • plant and machinery used for R&D purposes

How do you make a claim?

The claim is made by completing additional boxes in the Corporation Tax Return (form CT1). 

R&D tax credit claims are monitored and processed by Revenue, and businesses can make an R&D tax credit claim within 12 months of the end of the accounting period and are required to provide relevant records of expenditure incurred by such activities.

The quality and quantity of the records kept can affect the outcome of an audit. For this reason, many companies choose to work with a specialist R&D tax credit consultant as they are able to handle any enquiries from Revenue on your behalf. 

“We recommend that an R&D tax claim report is produced that justifies the technical advances and uncertainties, as well as details of the eligible expenditure being claimed, on a project by project basis,” Dowsett advises.

 

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