A R&D Tax Credit is an additional tax allowance equalling 25% of the relevant R&D costs of a company, explains, Robert Johnson, ifac’s Senior Tax Consultant.
An R&D tax credit is a great way to recover part of the investment in qualifying R&D activities as it offsets some of the corporation tax for the accounting period when it was incurred.
A qualifying R&D activity involves each of the following:
1. Systematic, investigative or experimental activity
2. Within an approved field of science or technology
3. Being one or more of the following; Basic research i.e. theoretical; Applied research; Experimental development
4. Resolution of scientific or technological uncertainty
5. Achieve scientific or technological advancement
Eligible R&D expenditure, based on Revenue’s current interpretation is as follows:
• Salary and all other employment benefits - This must be time apportioned, so timesheets are essential if this cost is to be claimed. Canteen or HR costs cannot be included.
• Plant and Machinery – What percentage of use contributes to R&D activity?
• Raw Materials/Consumables - What percentage of use contributes to R&D activity?
• Subcontracted R&D – You can only claim up to 15% (or max €100,000) of a company’s total R&D spend on outsourcing provided by a third party or up to 5% (or max €100,000) if that third party is a third level institution.
• R&D buildings
• Power consumed in R&D activities
Maximise Knowledge Development Box Reliefs
The Knowledge Development Box reduces tax on profits earned by qualifying Intellectual Property (IP) income to a reduced tax rate of 6.25% instead of 12.5%.
1. The IP income which qualifies is income which is derived from:
2. Qualifying patents
3. Copyrighted software Protective certificates for medical products and
4. Protective certificates for Plant and Machinery
A qualifying patent must have a substantive examination for novelty and inventiveness undertaken otherwise the Knowledge Development Box will not apply. European patents and other international patent offices are permitted once they provide substantive examination. A qualifying patent must be as a result of R&D activity undertaken by the company. IP for SMEs derived from processes etc. which are patentable but not yet patented, will qualify if they have been certified as ‘novel, non-obvious and useful’.
Note: Marketing related IP does not qualify (i.e. brands, trademarks and image rights)
For further information please contact:
David Leydon, Head of Food & AgriBusiness
087 990 8227