R&D Tax Credit – Finance Bill 2023 Updates

From 25 to 30; a very positive difference

Budget 2024 and Finance (No. 2) Bill 2023 announced a package of wide-ranging measures to support Irish enterprise, which Minister for Finance Michael McGrath believes will make a very positive difference and encourage more businesses to engage with the R&D regime.

The main changes were:

• increasing the R&D tax credit from 25 per cent to 30 per cent;
• doubling the first-year payment threshold from €25,000 to €50,000; and
• pre-notification of intention to make an R&D tax credit claim.

Our thoughts on those key changes, which apply in respect of accounting periods commencing on or after 1 January 2024, are:

Increasing the R&D tax credit

15 years ago, another Finance (No.2) Bill heralded the increase in the R&D tax credit from 20 per cent to 25 per cent and introduced cash instalment refunds. Prior to those changes, the number of companies making R&D claims had not exceeded 600, but within two years of the changes had doubled. The most recently published R&D statistics show the number of claimants in 2021 was in excess of 1,600. While we would not expect the Finance Act 2023 changes to double the number of claimants, they do increase the attractiveness of the regime.

Finance (No.2) Bill 2023 also introduced legislation to implement the Pillar Two 15 per cent minimum effective tax rate for large companies. It was announced as a once-in-a-generation reform to our corporation tax system. The impact of that reform is that companies within scope of Pillar Two will maintain the net value of the existing R&D tax credit, whereas smaller companies not within scope of Pillar Two will receive the full benefit of the 30% R&D tax credit.

Doubling the first-year payment

Currently the first-year payment threshold of €25,000 (or the full amount if the tax credit is less than €25,000) is a relatively minor change but a welcome one.

However, the increase to €50,000 is a lot more attractive, in that, the R&D statistics show that in 2021, 65% of all claimants were claiming R&D tax credits of up to €100,000.

Therefore, the ability to receive €50,000 as a year-one instalment or the full tax credit if less than €50,000 will be a significant cash flow benefit for the majority of claimants.

Pre-notification

For companies enticed by the above changes and intending to make their first tax credit claim, or it has been more than 3 years since their last claim, there is now a requirement to notify Revenue in writing of their intention to make a claim. The notification is to be made on or before 90 days prior to making the claim, and by means of a prescribed form. The information required is to include:

1. name, address and corporation tax number of the company,
2. description of the research and development activities carried out by the company,
3. number of employees carrying on research and development activities, and
4. expenditure incurred by the company on research and development activities, which has been or is to be met directly or indirectly by grant assistance.

While the pre-notification is new to the Irish regime, it has been introduced in the UK, where for accounting periods commencing on or after 1 April 2023, there will be a requirement to notify HMRC of an intention to claim within six months of the end of the relevant accounting periods. As the UK regime differs to Ireland in that it operates a 24 month claim period, this means the first of these advance notifications under the UK regime will be due by 30 September 2024. Should the UK claimant company miss the notification deadline they will be unable to make a claim.

It will be interesting to understand how the notification will operate under the Irish regime, and whether the absence of notification or notification within 90 days will deny entitlement to claim.

Concluding Comments

The Irish R&D Tax Credit regime is now 20 years old and continues to be a crucial feature of Ireland’s corporation tax offering. It enables us to remain competitive in attracting R&D investment into Ireland, growing our indigenous companies, and providing employment for our graduates.

The amendments build on the positive changes introduced in last year’s Finance Act to make our R&D tax credit regime a fully payable credit regime, ensuring we have an environment that allows businesses to thrive.

We may not experience the doubling of claimant numbers seen before but it will make a very positive difference to the R&D landscape.