Updated Revenue R&D Tax Credit Guidelines

Following the publication of the latest Research and Development (R&D) Corporation Tax Credit manual, Damien Flanagan and Ronan Moore look at what this means for businesses conducting R&D in Ireland.

Revenue have released the latest version of its Research and Development (R&D) Tax Credit Guidelines, dated July 2023. The latest version includes key updates to the R&D tax credit brought about with Finance Act 2022 which are already outlined in legislation.  

Resulting from the new changes introduced by Finance Act 2022, the tax credit will now be paid out to all claimants, regardless of the corporation tax position, in three instalments over three years. Companies with R&D tax credit claims of more than €50k 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.

The previous payroll tax restrictions which applied to the refundable element of the R&D tax credit have been removed, so the entire R&D tax credit amount is now refundable. The legislation now provides that a ‘valid claim’ must be made by the company before Revenue process any refund or offset.

See the updated Revenue guidance document (PDF, 981KB)

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 either the new or the old rules (e.g. for the year ending 31 December 2022 claims).

Revenue’s updated R&D Corporation Tax Credit Duty Manual provides detail on the above and includes new examples of:

• How R&D credits will be refunded to companies under the new rules, and
• How carried forward cash refund instalments may be accelerated.

Given the changes to how the R&D tax credit will be claimed (i.e. now longer a direct offset against Corporation Tax), a new ‘specified return’ has been prepared by Revenue. For R&D tax credit claims relating to periods commencing on or after 1 January 2022, but before 1 January 2023 (i.e. the transition period), this will need to be completed in addition to the Corporate Tax return in order to make sure the R&D tax credit claim is properly made. 

One key update outside of the Finance Act 2022 changes is the inclusion of Cloud Computing Costs under Section 4 – Qualifying Expenditure. Revenue outline that “costs incurred by a company on cloud computing are allowable costs for the purposes of qualifying R&D expenditure where those costs are incurred, and to the extent that they are incurred, wholly and exclusively in the carrying on by the company of qualifying R&D activities.” This is a positive update and reflects the practical reality of companies using cloud computing services to carry out R&D activity, particularly in the software industry.