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23 Oct, 2019

Tax Measures to Incentivise R&D

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. First published in our 2019 Food and AgriBusiness Report.

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

davidleydon@ifac.ie

087 990 8227