R&D Tax Credit: Rising claims, new rules, and what comes next

In this article, Eoin Brennan, Managing Director of SciMet R&D, brings readers an update on the Research and Development Tax Credit and explains the importance of the new pre-notification procedure for first time claimants and certain new claims.

Introduction

Latest Revenue statistics show record levels of engagement with the Research and Development (R&D) Tax Credit, reflecting both increased investment in R&D and a broader base of claimants. With improvements like the 30% credit rate now in effect and further enhancements likely following the Department of Finance’s recent consultation, uptake may grow even further. The potential introduction of a new Innovation Tax Credit also reinforces the central role of tax incentives in supporting research, development and innovation (RD&I) in Ireland. In this evolving landscape, staying informed is essential. This article outlines recent developments, emerging obligations, and their implications for Irish businesses engaged in RD&I.

Claimant numbers and expenditure hit new highs

Recently released R&D Tax Credit statistics for 2023 show a record-breaking year on several fronts. The number of companies claiming rose to 1,804, an 11% increase on the previous year. The total Exchequer cost surged to €1.407 billion, up from €1.158 billion in 2022 and €753m in 2021.

Much of this growth is being driven by larger companies, i.e. those with over 250 employees. Large companies accounted for 225 claims and €1.117 billion in credit in 2023, the highest on record. However, there were also strong increases across the board, with notable rises in the number of claims from companies with fewer than 50 employees and mid-sized firms (i.e. 50 to 249 employees). As there is now widespread recognition of the need to improve SME access to the credit, it is encouraging to see further engagement in this segment. That said, more must be done to ensure that all R&D-performing SMEs are able to benefit from the relief.

New measures now in effect

As outlined in previous articles in the April 2023 and August 2024 editions of tax.point, recent legislative changes introduced by Finance Act 2022 (FA22) and Finance (No. 2) Act 2023 (FA23), have significantly reshaped the R&D Tax Credit. Some measures, like the move to a three-year fixed payment schedule and the removal of the cap on payable credits, came into operation last year, so, hopefully, claimants are now more familiar with these changes and have adapted their processes accordingly.

However, other key enhancements, such as the increase in the credit rate to 30% and increases to the first instalment amount, apply to accounting periods commencing on or after 1 January 2024. As a result, many companies will be dealing with these provisions for the first time as they begin to prepare their 2024 claims, so care must be taken to ensure the new rules are correctly applied and properly understood.

Pre-notification for first time claimants

One important change now in effect for accounting periods commencing on or after 1 January 2024 is the pre-notification requirement for first-time claimants. These companies must now notify Revenue at least 90 days before making a claim of their intention to do so, providing prescribed details relating to the claim. This requirement also applies to companies that have not submitted an R&D Tax Credit claim in any of the previous three years. It is important to note that there is considerable work involved in completing the pre-notification, including the preparation of a description of the R&D activities being undertaken.

Two dedicated forms have been made available on Revenue’s website for this purpose. One form is for claims under section 766C TCA 1997 and the other is for claims under section 766D. These forms must be submitted through MyEnquiries via ROS. To file a pre-notification, users should log into ROS, navigate to MyEnquiries, and select the category ‘Corporation Tax (CT)’ followed by the subcategory ‘R&D Pre-filing Notification’.

We are still encountering companies that are unaware of the obligation to pre-notify Revenue of their intention to make an R&D Tax Credit claim. Fortunately, to date there has been time to act and provide the required notification in advance of submitting the claim. However, as the year progresses, the risk of missing the 90-day window will increase. All companies and advisors should therefore assess as early as possible whether a pre-notification is required and take action where necessary.

Avoiding pitfalls when completing the Form CT1

In light of recent legislative changes, the R&D Tax Credit sections of the corporation tax return (Form CT1) have undergone significant revision. Over the last year, we have been approached by a number of companies that have run into difficulty due to submitting incomplete or incorrectly completed Form CT1s. These companies have prepared the claims in-house or with another advisor and require assistance in dealing with Revenue in relation to the claim. Fortunately, for many, the outcome has been positive. However, the time and cost incurred by the company in resolving the issue could have been avoided if the Form CT1 was completed correctly in the first place.

Revenue recently published guidance highlighting a number of recurring issues they are encountering on 2024 Form CT1s. These include claims being made under the wrong legislative provisions, failure to provide the required expenditure breakdown, and omitting to specify whether instalments are to be treated as a payable credit or an overpayment of tax. Errors such as these can invalidate a claim entirely, especially if not corrected within the 12-month statutory deadline. In this self-assessment regime, companies must take care to familiarise themselves with the updated requirements and ensure the Form CT1 is completed accurately and in full.

To assist taxpayers with these updates, Revenue recently released a four-part video series on completing the R&D panels of the 2024 Form CT1. The videos, available on the Revenue website, cover both current year claims and instalments due from 2022 and 2023. These videos are a welcome resource and should be reviewed by anyone preparing or reviewing an R&D claim whether in-house or through an advisor.

Looking ahead: The future of the R&D Tax Credit

The Department of Finance’s recent public consultation on the R&D Tax Credit and broader innovation supports was held against a backdrop of intensifying global competition for RD&I investment, geopolitical uncertainty, and evolving international tax rules. In this context, the Irish Government recognises the critical role that tax incentives play in supporting RD&I in Ireland.

A key aim of the consultation was to ensure that the R&D Tax Credit remains effective in delivering on its policy objectives. As a result, further enhancements to the regime are likely in the future. In addition to the credit rate itself, the consultation drew attention to other priorities such as reforming subcontracting rules and providing clearer, more practical guidance for claimants.

From our own submission to the consultation, and discussions with businesses, it is clear that the regime’s competitiveness will depend not only on the generosity of the credit, but also on how easy it is to access, interpret and administer in practice. As Ireland works to maintain its attractiveness for R&D investment, especially in light of developments in the US and other jurisdictions, well-targeted reforms will be key to keeping the R&D Tax Credit fit for purpose in the years ahead.

A new Innovation Tax Credit on the horizon

The recent public consultation also covered options to support innovation beyond the scope of the existing R&D Tax Credit, and as such, the introduction of a new Innovation Tax Credit now appears to be a real possibility. This would be a very positive development for a broader base of firms.

The current R&D Tax Credit is limited to narrowly defined scientific and technological activities, as determined by the Science Test. However, it is widely recognised that innovation depends on a much broader range of inputs. The OECD’s Oslo Manual, for example, outlines eight categories of innovation activity. In addition to R&D, this includes engineering, design and other creative work, software development, innovation management, employee training, marketing, and the acquisition of innovation-related assets. These activities frequently underpin the development of new or improved products, services and processes and yet, some of the activities may fall outside the scope of the current R&D tax credit regime.

Policymakers are now considering what form a new incentive might take, how innovation should be defined for tax purposes, and how to ensure that any new measure delivers genuine additionality while remaining targeted and cost-effective.

In the meantime, companies could prepare by reviewing how they structure and track their innovation activities. While some are already approaching innovation with a clear strategy and formal processes, others are not yet doing so, which could become a barrier to future support and funding access.

Conclusion

The R&D Tax Credit continues to evolve with record uptake, significant legislative reform, and the prospect of new innovation supports on the horizon. While this is undoubtedly positive, it also brings new complexity. From pre-notification rules to updated Form CT1 requirements, and from interpreting the latest guidance to preparing for what may come next, businesses must remain alert. With further changes likely in the near future and increased policy attention on innovation, now is the time for companies to not only review their compliance processes, but also take stock of how they manage, document and govern their innovation activities. In a landscape where incentives are growing in both value and scrutiny, preparedness will be key to maximising support and minimising risk.

Eoin Brennan is the Managing Director of  SciMet R&D, a specialist consultancy dedicated to delivering market-leading R&D Tax Credit services to innovation-driven companies across Ireland. Eoin works with many of Ireland’s most innovative SMEs and multinational corporations across a diverse range of industries.