The Finance Act 2023 has ushered in a new era for companies seeking to benefit from the Research and Development (R&D) Tax Credit in Ireland. A significant change is the introduction of a 'Pre-notification' requirement, which mandates that companies either making their first RDTC claim or those who have not made such a claim in the previous three accounting periods must now engage in a more proactive approach.
In Review of the New Research and Development Tax Credit, James Bradley explains what you need to know.
Under this new procedure, eligible companies are required to submit detailed information to Revenue at least 90 days before making their claim. This information includes the company's name, address, corporation tax number, a description of the R&D activities undertaken, the number of employees involved in these activities, and details of any expenditure on R&D that has been or will be offset by grants or other forms of assistance.
This pre-notification process effectively advances the claim preparation timeline by three months. For instance, a company with a 31 December accounting period that intends to file an R&D claim as part of its tax return on 23rd September would need to submit the relevant details to Revenue by approximately 23rd June of the same year.
Additionally, starting from January 1, 2024, the RDTC will be disbursed in three annual instalments. The first instalment will be the greater of €50,000 or 50% of the credit claimed. The second instalment will be calculated as three-fifths of the remaining credit after the first instalment. Finally, the third instalment will cover any remaining balance of the credit claimed.
Companies must specify for each instalment whether it should be treated as an overpayment of tax or if they wish to receive a direct payment from Revenue. These changes not only impact the cash flow of companies but also necessitate a strategic approach to tax planning for those engaging in R&D activities.
Example: A company claims an R&D corporation tax credit of €80,000.
The first instalment is the greater of €50,000 or the credit claimed if lower, or 50% of the credit claimed. Therefore, the first instalment due to the company is €50,000.
The balance of the R&D corporation tax credit of €30,000 (i.e. €80,000 - €50,000) may be claimed as a second and third instalment.
The second instalment is the R&D corporation tax credit less the first instalment x 3/5.
Therefore, the second instalment amount to be claimed is €18,000 (i.e. €30,000 x 3/5). The third instalment is the amount of the R&D corporation tax credit claimed less the first and second instalments.
Therefore, the final instalment amount to be claimed is €12,000 (i.e. €80,000 - €50,000 - €18,000).
In conclusion, the new pre-notification requirement for RDTC claims represents a shift towards greater foresight and planning in the R&D tax incentive landscape. Companies must now adapt to these changes to optimise their tax positions and ensure compliance with the updated regulations.
To watch the full session, please click here. James Bradley covers the following topics during this course:
- Revenue R/D Credit
- Capital; R/D Credit
- New repayment system
- R/D Credit to key employees
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.