Research and Development

Tax credits are available for research and development expenditure under S766 and S 766A of the TCA 1997.

Section 766 of the TCA 1997 claims the base year for expenditure for each year's claim is the year ending on a date in 2003 which corresponds to the date on which the company's accounting period ends.  This means that any incremental expenditure in any year in excess of that incurred in 2003 qualifies for the relief.  For periods beginning on or after the 01/01/2014 companies can ignore the first €300,000 of base year expenditure.  For periods beginning on or after the 01/01/2015 the base year concept is abolished. 

The relief is calculated by allowing a tax credit of 25% of the qualifying incremental expenditure against the corporation tax liability of the company.  This relief is in addition to the normal deduction of expenditure incurred against taxable income. 

The credit operates as follows:

  • Firstly set off against the current periods CT liability. 
  • Any excess is set back against the prior period of corresponding length. 
  • One third of the excess is refunded after the due date of filing the current CT return. 
  • The remaining excess is set against the CT liability of the next accounting period. 
  • Half of the remaining excess is refunded with the other half being carried forward against the next years CT liability. 

The limit on refunds is the greater of the total CT paid in the prior ten years or the total PAYE/PRSI liability expenditure incurred in the period.  (Including USC and employer's PRSI). 

Section 766A of the TCA 1997 grants relief for expenditure incurred on an R and D building.  To qualify the company must be able to claim industrial building capital allowances on the building.  The site cost however, is excluded.  The relief will be clawed back if the building is sold or ceases to be used within 10 years.  There is no base year concept for the buildings. 

Where machinery is used "wholly and exclusively" for the purpose of  R&D the relief is also allowable.  If the machinery is put to other commercial use revenue can apportion the claim on a "just and reasonable basis".  There is no definition in tax law of just and reasonable. 

Revenue also have the power to consult with experts to verify your claim. 

If you would like further information on this then please consult the revenue website or contact Shane Grennan.