Federal Research and Development (R&D) Tax Credit

In Federal

Qualifying for the R&D Tax Credit

When a company spends money on research and development activities, it may qualify for the R&D tax credit in Ireland. The credit is calculated at 25% of the qualifying expenditure and it helps in the reduction of a company’s corporate tax.

Qualifying R&D Activities

In order to qualify for the R&D tax credits, a firm should carry out research and development activities that fulfill the following conditions.

The activities must:

  • Involve systemic, investigative or experimental activities;
  • Generate new knowledge;
  • Have an unknown outcome.
  • Be either basic/applied research or experimental development.

Qualifying expenditures for R&D activity includes direct salary costs, materials and some overheads. Companies are allowed to claim certain expenses made to third parties for carrying out R&D activities.

Filing 12 Months from the End of Accounting Period

According to the federal laws, the R&D claims must be filed 12 months from the end of the accounting period in which the expenditures were incurred. According to the self-assessment system, when a company is satisfied that the requirements of a claim have been met, the relevant information is inserted in the CT1 return form. It is worth noting that if the deadline is missed, no claim can be made. Moreover, the Irish Revenue is able to audit any R&D tax credit claims made for up to 4 years from the end of the accounting period in which the claims were made.

Maintaining Proper Records

Firms or individuals claiming the R&D tax credit should maintain records of the expenditure incurred while carrying out the qualifying R&D activity. The records must meet certain requirements as described below:

  • Contemporaneous i.e. prepared while the R&D activity was being carried out
  • Relevant i.e. related to the R&D activity being carried out.

Regarding this, the quality and quantity of the records kept can affect the outcome of an Irish Revenue audit and hence firms should be careful in maintaining their records.

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