R&D tax credit update 2023

Under the new rules, the tax credit will now be paid out to all claimants, regardless of the corporation tax position, in three instalments over three years. For companies with R&D tax credit claims of more than €50k, you will receive the three refunds over three years on a 50%: 30%: and 20% split. Companies with tax credit claims below €50k, will get the refunds a bit earlier.

In order to meet the criteria of a ‘qualified refundable tax credit’, which is necessary to align with international tax reform, the R&D tax credit must be fully refundable within four years. To achieve this, the previous payroll tax restrictions which applied to the refundable element of the R&D tax credit have been removed. In addition, the legislation now provides that a ‘valid claim’ must be made by the company before Revenue process any refund or offset.

Finance Act 2022 also introduced additional reporting requirements with respect to the breakdown of R&D expenditure which must now be filed in the return when the claim is made.

In addition, following Finance Act 2022, a pre-trading company can now fall into the refundable tax credit, rather than carrying the R&D tax credit forward as a non-refundable credit.

The new rules apply for accounting periods commencing on or after 1 January 2023. However, prior to this, a transitional period applies which allows companies to choose to claim under the new rules or the old rules. Depending on the fact pattern of the company, there may be benefits from a cash flow perspective by choosing to claim either under the new rules or the old rules. For example, companies who choose to claim under the new rules during the transitional period, will have the option to accelerate cash refund instalments carried forward from the prior year.

However, it also means that companies that were used to fully offsetting their R&D tax credit against their corporation tax liability, will no longer be able to do so.