R&D Tax Credits, Do You Qualify?
By Jim Coyle, Product Test Manager at Sage
Everyone likes to be in receipt of tax credits because the more you are entitled to (and claim for, obviously) the less tax you pay to Irish Revenue. Since 1997, a Research and Development (R&D) tax credit has been available to all companies in Ireland, who undertake research and development activities within the E.U.
Various governments have continued to support this initiative because they want to create the conditions for high end technology companies to succeed, and even more so in the current economic times because the IT industry (for example) has remained remarkably resilient during these turbulent few years.
But as with individuals, companies will miss out unless they claim these credits. Let’s face it – no one is going to do it for you, not unless you pay an external company for this service, and that cost may be prohibitive.
So, what to do? Well first off, does your company qualify for this tax credit? If your R&D activities tick 1-5 below, then the answer is yes and you really should sit straighter in your chair because last time I checked this tax relief was running at a healthy 25% (with 2003 as a baseline).
R&D Qualifying Activities
- Systematic, investigative or experimental activities
- In a field of science or technology
- One or more of the following categories of research and development:
Basic research (are you doing this for the sake of increasing your knowledge?)
Applied research (are you doing this to solve a problem?), or
- Seek to achieve scientific or technological advancement, and
- Involve the resolution of scientific or technological uncertainty.
If you think this list looks detailed and non-trivial, you are correct – R&D Tax Credits is not for every company. Innovation is not something that just happens. You have to be serious about it. You will only succeed at innovation if you invest time and effort into this activity – or as the first word on point 1 puts it, you are systematic.
What was encouraging about Budget 2012 was the fact it targeted R&D individuals working within companies. This is a first and an extension of the current scheme.
From 2012, companies can use a portion of their received tax credits to reward key employees who have been involved in the development of R&D. So not only is the Government working to encourage companies, but it is also sending a clear a signal that they want to attract and retain key R&D individuals within the Irish tax system.
To finish on a slightly sobering note, an irony is that successfully claiming R&D Tax Credits, while all good and beneficial to companies and now individuals, does not necessarily give your company an advantage over your competitors because the assumption we make in Sage is that all sensible and serious companies claim this benefit. Why wouldn’t they? In Sage, we will continue to claim R&D Tax Credits to keep things equal. Indeed, if we fail to do this, we run the risk of falling behind.
When investing in R&D, careful documentation of project time, wages and activities is vital to realize the full value of the R&D tax credit. Read how Sage Coretime can help you with this.