What has changed and how does it work?

1. Previously Revenue only allowed companies to carry forward R&D tax credits for offset against future corporation tax liabilities. The removal of limits on the payable element of the credit eliminates the administrative burden of reviewing payroll liabilities, to then quantifying the payable element of the current refund and the subsequent tracking of the carried forward credits. Medium to large companies that have significant capital investment in R&D, which would exceed their payroll costs, are most likely to benefit. Overall, a pre-trading company can now fall into the refundable tax credit as cash, rather than carrying the R&D tax credit forward as a non-refundable credit.
2. For the purposes of an R&D tax credit claim under section 766, where expenditure has been incurred by a company in the carrying on of R&D activities before the company commenced to trade, a claim in respect of pre-trading expenditure must be made within 12 months from the end of the accounting period, beginning at the date the company first carries on a trade
3. The Finance Act 2022 also introduced additional reporting requirements with respect to the breakdown of R&D expenditure which must now be filed in the return when the claim is made.
4. The amount of the R&D tax credit due is the amount which the company would have been entitled to claim if it had been trading when the expenditure was incurred. This means that the one-year pre trading limit has been lifted to include all years where a valid claim would be due had they been trading.