FAQ's Research & Development

Will interest be payable where for example the first instalment is paid by Revenue Commissioners after the specified return date?

Section 865A TCA 1997 provides for interest on repayments in certain circumstances. Payments made by the Revenue Commissioners under this scheme are not repayments of corporation tax, and therefore do not attract interest.

The section provides that these payments are treated as overpayments of corporation tax for the purposes only of subsection (2) of section 1006A TCA 1997. This allows such payments to be offset against other tax, duty and excise liabilities.

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Will amounts paid to companies by Revenue in respect of excess tax credits be income of the company for the purpose of corporation tax?

No. S766 (7A) and S766A (7) provide that such amounts paid shall not be income of the company or another company for the purpose of corporation tax.

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How will the offset work?

Payments made by the Revenue Commissioners under this scheme are subject to section 1006A of the Taxes Consolidation Act. This will ensure that where the company has not complied with its obligation to deliver any return or pay any liability, the payment will be withheld or offset as the case may be. The Taxes (Offset of Repayments) Regulations 2002 S.I. No.471 of 2002, set out the priority of offset in respect of any repayment in respect of a claim or overpayment made. Initially the order of offset will be against:

  • Corporation Tax,
  • Income Tax (excluding PAYE)
  • Capital Gains Tax,
  • VAT
  • PAYE

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If a company has an excess in the accounting period in which the expenditure was incurred, can it claim to have that amount paid to them by the Revenue Commissioners without a carry back to the previous accounting period?

The legislation provides that such an excess must first be carried back against any corporation tax of the preceding accounting period before a claim for payment can be made. However where there is no corporation tax liability for the preceding accounting period, a claim for payment by the Revenue Commissioners may still be made.

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Following the changes introduced in the Finance (No.2) Act 2008, how can the tax credit be used?

The tax credit must be used initially to reduce the corporation tax liability of the company for the accounting period in which the expenditure on research and development or relevant expenditure is incurred. Any unused amount may be carried forward and used to reduce the corporation tax of succeeding accounting periods. The Finance (No.2) Act 2008 made no change to this option to carry forward unused credits, however some further alternative options were introduced as follows:

Where an excess remains, a company may claim to use that excess to reduce the corporation tax of the preceding accounting period. If any excess still remains it may still be carried forward and used to reduce the corporation tax of succeeding accounting periods. However as an alternative, the company may claim to have the amount of that excess paid to them by the Revenue Commissioners in 3 instalments over a period of 33 months from the end of the accounting period in which the expenditure was incurred.

The first instalment will be paid not earlier than the date on which the corporation tax return for the accounting period in which the expenditure was incurred, is due. The amount to be paid will be 33% of the excess.

The remaining balance will be used to reduce the corporation tax of the next accounting period. If any excess still remains then the Revenue Commissioners will make a payment to the company of 50% of that excess, not earlier than 12 months after the date the first instalment was paid.

The remaining 50% of that excess will then be used to reduce the corporation tax of the following accounting period. If any excess still remains the Revenue Commissioners will then pay the amount of that remaining excess to the company, not earlier than 24 months after the date the first instalment was paid.

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If a building is not used wholly and exclusively for R&D, what portion of expenditure can be claimed?

Prior to the Finance (No.2) Act 2008 to qualify for the credit in respect of a building or structure, the building or structure had to be used wholly and exclusively for R&D. The Finance (No.2) Act 2008 provided that where the building is used in the specified relevant period of 4 years, at least 35% for research and development activities, the credit will be calculated by reference only to the portion of the building or structure to be used for research and development activities. The basis used to determine the proportion of use of the building must appear to the inspector (or on appeal to the Appeal Commissioners) to be just and reasonable. If at any time the basis used in determining the proportion of use of the building ceases to be just and reasonable then a further apportionment should be made. Any assessment or repayment necessary to give effect to this revision will be made.

If a company has incurred relevant expenditure on a qualifying building of €1,000,000 and that building is be used by the company 50% for R&D and 50% for manufacturing, the specified relevant expenditure is €500,000. The tax credit due will be €125,000 (25% of €500,000).

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Are there any time limits imposed in respect of claims for research and development tax credits?

Yes. All claims made on or after 1 January 2009 under section 766 and section 766A TCA 1997 must be made within 12 months from the end of the accounting period in which the expenditure was made. On 24 November 2008 the Revenue Commissioners issued eBrief No.63/2008 setting out the new time limits and advising practitioners of the option available to them to lodge protective claims on or before 31 December 2008, in respect of R&D expenditure incurred in periods ending on or before 31 December 2007.

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What is the benefit for start up companies?

The changes introduced in the Finance (No.2) Act 2008 allows all companies to benefit from a tax credit of 25% of qualifying expenditure. It is quite common for start up companies to be in a loss making position in their first few years of trading, resulting in no corporation tax payable. As the system up to 31st December 2008 only allowed a company to use the tax credit to reduce corporation tax payable, a company could not benefit from the credit while in a loss making position.

Under the new system, instead of carrying forward unused tax credits, companies can claim to have the amount of unused credits that remain (after offset in the previous accounting period) paid to them in 3 installments, subject to the limits imposed under Section 766B TCA 1997.

In the case of a start up company, which has not previously paid corporation tax, the limit will be its payroll liabilities for the period in which the expenditure was incurred. This represents a significant cash-flow improvement particularly for start up companies and companies in loss making situations.

If the amounts payable are restricted to the payroll liabilities for the period in which the expenditure was incurred any excess may be carried forward and set against corporation tax for future accounting periods.

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Where companies have submitted protective claims by 31/12/08 what must they now do to ensure Revenue accept a valid claim?

Revenue eBrief No. 02/2009 sets out the specific details that must accompany any claim made in accordance with eBrief No.63/2008. Revenue will not accept further claims submitted in respect of a company that has not lodged a protective claim. The e Brief advises that:

  1. Any claim submitted with incomplete information will not be considered.
  2. Supplementary information submitted after 30/4/2009 will not be considered.
  3. Generic information, which is not project specific or which does not address the scientific issues in a specific or precise way, will not be considered.
  4. Separate information must be submitted in relation to each project, where a company carried on more than one project.

The e Brief also set out in the detail the specific information to be submitted by 30/4/2009, to convert a protective claim into a valid claim.

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What changes have been made to the claw-back provisions?

The purpose of the claw-back is, in certain circumstances, to recover from the company the value of tax credits already used to reduce corporation tax by virtue of section 766A TCA 1997.

Prior to the Finance (No.2) Act 2008 the claw back applied so that any time in the period of 10 years commencing at the beginning of the accounting period in which the relevant expenditure was incurred, the building or structure was:

  • sold, or
  • commenced to be used for purposes other than the carrying on by the company of research and development activities.

The Finance (No.2) Act 2008 provided that the claw-back will apply if at any time in the period of 10 years commencing at the beginning of the accounting period in which the relevant expenditure was incurred, the building or structure is:

  • sold, or
  • ceases to be used for the purpose of research and development activities, or
  • ceases to be used for the purpose of the same trade that was carried on by the company at the beginning of the specified relevant period, in connection with which the research and development activities were carried on.

In addition to using the tax credit to reduce corporation tax, the new system provides for payment of unused credits to the company by the Revenue Commissioners. The claw-back provisions are amended to recover from the company the value of both tax credits used to reduce corporation tax and the unused tax credits already paid by the Revenue Commissioners.

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What happens to the amounts payable if the next succeeding accounting period is a period of less than 12 months?

A company incurs expenditure on R&D in the 12 month accounting period ended 31/12/09. If after carrying back unused credits to reduce the corporation tax of the previous accounting period an excess still remains, the company may claim to have that excess paid to them by the Revenue Commissioners in 3 instalments over a period of 33 months from the end of the accounting period in which the expenditure was incurred.

The first instalment will be paid not earlier than 21/9/10, i.e. the date on which the corporation tax return for the accounting period in which the expenditure was incurred, is due.

The legislation requires that the remaining balance will be used to reduce the corporation tax of the next accounting period, even where that period is less than 12 months. If the next accounting period is the period of 6 months ended 30/6/10, then any excess which still remains will be used to reduce the corporation tax of that 6 months accounting period. However the 2nd instalment cannot be paid earlier than 12 months after 21/9/10, which was the due date for the corporation tax return for the accounting period in which the expenditure was incurred. Therefore the 2nd instalment will not be paid earlier than 21/9/11.

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How can a company make a claim to have a payment made to them in respect of unused credits?

Panel 9 of the form CT1 2009 will include the relevant boxes which the claimant company must complete to make a claim.

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If a company has been in receipt of an RTI grant must they submit the information requested in e Brief No 02/2009?

The procedures set out in eBrief No. 63/2008 and eBrief No.02/2009 apply to all companies wishing to make a claim for R&D tax credits for periods ending on or before 31/12/2007, where full claims have not already been made on or before 31/12/08. These procedures will apply to companies who were in receipt of RTI grants.

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Are R&D claims still made under self assessment?

Yes, where a company is satisfied that it can comply with the requirements for the relief, the R&D credit is claimed by inserting the relevant details into the company’s Form CT1. It is important to note that no supporting documentation is required to be submitted with the return. In this respect, claiming a research and development tax credit is no different from claiming any other corporation tax relief or tax credit.

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What is the relevance of the year 2003?

Under S766 the R&D tax credit is calculated on an incremental basis. For the purpose of calculating the incremental amount the expenditure in a year is compared with expenditure in the base year of 2003. The following example illustrates the incremental basis.

			R&D expenditure 2003:	100,000 
R&D expenditure 2009: 300,000
Incremental amount: 200,000

Tax Credit due in 2009 is (200,000 @ 25%): €50,000

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If a company has Nil R&D expenditure in 2003 can they still claim the credit in respect of expenditure incurred in later periods.

Under S766 the R&D tax credit is calculated on an incremental basis. For the purpose of calculating the incremental amount the expenditure in a year is compared with expenditure in the base year of 2003, which may be Nil. The following example illustrates the point.

		R&D expenditure 2003	NIL 
R&D expenditure 2009 300,000
Incremental amount: 300,000

Tax Credit due in 2009 is (300,000 @ 25%) €75,000

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What happens if a company’s R&D expenditure in an accounting period is less than the corresponding figure for 2003?

Under S766 the R&D tax credit is calculated on an incremental basis. For the purpose of calculating the incremental amount the expenditure in a year is compared with expenditure in the base year of 2003. If the expenditure in 2003 was greater than the expenditure in the year of claim, then there was no incremental R&D spend. The following example illustrates the point.

		R&D expenditure 2003 	500,000 
R&D expenditure 2009 300,000
Incremental amount Nil

Tax Credit due is Nil.

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