With a wide variety of industries in Ireland conducting various projects, many companies tend to get confused or question, “what actually qualifies for an R&D Tax Credit Claim”? Below are but not limited to, some of the qualifying costs for an R&D Tax Credit Claim.
Labour Costs
Allowable costs include salaries, pension contributions, bonus payments, health insurance or other items included in the package paid to R&D employees for carrying out R&D activities.
Overheads
Costs which are not wholly and exclusively incurred in the carrying on of the R&D activity, including indirect overheads such as recruitment fees, insurance, travel, equipment repairs or maintenance, shipping, business entertainment, telephone, bank charges and interest, do not qualify as relevant expenditure” when claiming the R&D tax credit. However, Revenue also states that “overheads which are wholly and exclusively incurred directly in the carrying on of the qualifying R&D activity, qualify for the credit. Overheads associated with the individual’s employment, such as HR costs, payroll team costs, canteen costs or similar, are not considered by Revenue to be eligible costs, as they are of the view that such costs are not incurred in the carrying on of R&D activity.
Materials
R&D Revenue Guidelines 2015 states that while a company can use raw materials during the course of an R&D activity that might have a commercial use once the R&D has concluded, the ‘lower of cost, or net realisable value’ of any material or saleable product which remain after the R&D activity should be deducted from the expenditure claimed as part of the R&D tax credit. Scraped material resulted as a result of R&D activities are qualifying as part of the R&D tax credit claim.
Plant & Machinery (P&M)
Guidelines 2015 states that expenditure on P&M may qualify for the R&D tax credit where such expenditure also qualifies for capital allowances (considering depreciation rate). Guidelines 2015 now include an extract from Tax Briefing 59 which clarifies that Revenue are prepared to accept that expenditure on P&M may be treated as incurred on either (1) the date the plant and machinery is first brought into use for the purposes of a trade or (2) the date the expenditure becomes payable. This latter option is subject to a condition that the credit will be clawed back if the plant or machinery is not brought into use for the purpose of a trade within two years of the expenditure becoming payable.
Subcontractors
Guidelines 2015 emphasises that outsourced activity “must constitute qualifying R&D activity in its own right”. This differs to Guidelines 2012, in which outsourced activities were considered to be “those activities to be used in connection with” R&D activities. It is also stated that the use of agency staff in the carrying on of R&D activities is considered to be outsourcing, and as such the related costs should be treated in accordance with outsourcing rules. This amendment appears to bring to an end a longstanding Revenue practice of accepting outsourced activities that directly contribute to the R&D activity as being eligible, subject to the 15% of the total credit or 100k cap, whichever greater. (Subject to the company incurring at least the same level of expenditure on qualifying activity which it carries out itself).
Buildings
When a qualifying building is constructed for the purpose of R&D, Guidelines 2015 states that the credit is available from the date on which the building was first brought into use for the purpose of a trade. Guidelines 2015 now clarifies that where expenditure is incurred on the construction of a building which spans two or more accounting periods, ‘the aggregate expenditure is treated as incurred from the date that the building is first brought into use’. Therefore, the 12 month claim period applies by reference to the date the expenditure is treated as incurred e.g. the date the building is first brought into use. In cases where a qualifying building is refurbished for the purpose of R&D, the credit is available from the date on which the refurbishment is completed, or an earlier date to be decided by the company, beginning not earlier than the date the refurbishment commences.
Source: Revenue Ireland Research & Development Tax Credit Guidelines 2015
For a detailed evaluation on qualifying costs, please contact the professionals at Braithwaite:
Victoria Procunier
Senior Business Consultant
Mobile: +353 85 216 6966
Email: vprocunier@braithwaite.ie