Is Your Company’s R&D Tax Credit Claim In Order?

August 12, 2013

Revenue are examining claims for Research & Development (R&D) Tax Credit, as audits reveal that some companies have overclaimed tax credits and refunds.

This is according to a Revenue statement quoted in Carl O’Brien’s article in today’s Irish Times.

Revenue probe R&D Research & Development Tax Credit Claims

The R&D Tax Credit Scheme allows companies a 25% tax credit for the cost of carrying out qualifying R&D activities.

This is in addition to the normal 12.5% writeoff against income for Corporation Tax purposes, and means that companies can recoup 37.5% of such costs against their tax liabilities.

For example a company spends €100,000 (eg wage costs) on a qualifying R&D activity.

They claim this expenditure as a deduction in their accounts and Corporation Tax return. This yields a 12.5% tax saving, worth €12,500.

They can also claim a further 25% credit if the cost relates to a “qualifying R&D activity”. This yields a further 25% tax saving, worth €25,000.

The total tax saving is €37,000, on spending of €100,000.

It is easy to see that the scheme can be very lucrative. Over 1,200 companies have availed of it to date, and in 2010 they claimed approx. €224 million in tax reliefs. However it is not a free lunch and there are detailed terms and conditions.

Revenue are now concerned that some firms have breached these terms by overclaiming R&D credits, and they are now beefing up their audit programme in response.

The Irish Times claim that audits of 32 companies have uncovered 26 cases where a total of €6 million was overclaimed. However the majority of cases are said to have involved “accounting errors” and in only one case was a tax credits claim ruled fully out of order.

If you own or work in an R&D claimant company, the lessons are clear:

  • You must ensure that each claim refers to a properly qualifying research and development activity.
  • Where a cost refers only partly to an R&D activity (eg staff hired to carry on R&D and other work) it is important to correctly apportion the R&D and other elements. If anything, it pays to be conservative in apportioning R&D and non-R&D costs.
  • All R&D spending must be clearly documented as such and you must keep detailed records of all R&D activity.
  • Don’t forget that the scheme only covers incremental expenditure over the total of such spending in the 2003 base year, and is also subject to further limits based on historic Corporation Tax payments and payroll costs.
  • Remember that grant-aided expenditure is wholly excluded from the R&D credit scheme.

For more, see:

  • The Revenue Commissioners Guidelines for the Research & Development Tax Credit.
  • The Revenue.ie webpage for the R&D Credit.
  • Today’s Irish Times article.

If you have any queries or concerns on the R&D Tax Credit, you should seek quality professional advice.


OECD Director Threatens Irish Corporation Tax Reliefs

June 19, 2013

The head of tax at the OECD has today told Ireland that it must charge Corporation Tax at the full 12.5% rate, if we wish to retain our current Corporation Tax regime

The comments by Pascal Saint-Amans, a former French Ministry of Finance official, were made at a conference in Dublin and reported by RTE News.

Ireland must charge full corporation tax rate - OECD - RTE- 19-6-13

It’s worth bearing in mind that any move to enforce an effective Corporation Tax rate of 12.5% here would mean the abolition of

  • Capital Allowances
  • Research & Development Tax Credits
  • Group Relief

These reliefs are very important to both indigenous firms and multinationals based here, particularly in productive sectors that require large capital investment.

It would be a disaster for these firms if our government was to acquiesce in their removal.

Oddly enough, as a Frenchman, M. Saint Amans will be acutely aware that:

Maybe he should clean up his own backyard first.

 


Budget 2012 – More Highlights

December 6, 2011

The 2012 Summary of 2012 Budget Measures – Policy Changes is now online.

This includes the following points that were not fully addressed in the Minister’s Speech today.

Budget 2012 6 December 2011USC Surcharge on ‘Property Reliefs’ income – A surcharge will apply from 1 January 2012 on individuals with gross incomes over €100,000. The surcharge will be 5% on the amount of income sheltered by property reliefs in a given year. This will be operated as a a higher rate of USC and will apply to all ‘high earning’ investors with Section 23 or accelerated capital allowance schemes investments

Investors in accelerated capital allowance schemes will no lose their entitlement to unused capital allowances,  beyond the tax life of the scheme after 1 January 2015.

The new 2% Stamp Duty rate on non-residential property applies from Budget Day, 6 December 2011.

Consanguinity relief from Stamp Duty, which applies on transfers of non-residential properties between blood relatives is to be retained to the end of 2014 but will be scrapped after 1 January 2015. This relief provides for a 50% cut in the standard rate of Stamp Duty on intra-family transactions.

The €100 household charge will be replaced by a full property tax in 2014.

The increases in Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) from 25% to 30% will apply from Budget Day. The cut in the tax-free Group-A CAT threshold (most commonly parent-to-child gifts and inheritances) will cut the maximum tax-free sum from €332,084 to €250,000. This also applies with immediate effect.

A new CGT incentive relief applies to properties bought between Budget night and the end of 2013. If the property is held for more than seven years, the Capital Gain arising in that period will not attract CGT. This incentive is introduced with immediate effect.

The tax relief scheme for corporate investment in renewable energy projects is being extended from 31 December 2011 to 31 December 2014. This scheme encourages investment in approved renewable energy projects in the solar, wind, hydro (including ocean, wave or tidal energy) and biomass sectors

The exit tax on life assurance policies is being increased from 27% to 30% in line with the increase in DIRT tax on deposit interest. These changes apply from 1 January 2012.

The €200,000 Domicile Levy is being extended to include non-Irish citizens. The Budget 2011 version of this levy was an embarrassing failure with just 10 people declaring themselves liable to pay it by the recent deadline, according to RTE News last month.

The VAT rate increase from 21% to 23% will apply from 1 January 2012. Traders will therefore avoid the VAT hike on their pre-Christmas and pre-New Year Sales receipts.

The VAT rate on District Heating is being cut from 21% to 13.5%

Admission charges to open farms will become liable to VAT from 1 January 2012. This will be charged at the 9% VAT rate for tourist enterprises.

Excise Duty on cigarettes goes up by 25 cents (including VAT) for a packet of 20. A pro-rata increase applies to other tobacco products.

The Carbon Tax increase on petrol and diesel applies from midnight on Budget Day, with the corresponding increases in Kerosene, Marked Gas Oil, Liquid Petroleum Gas (LPG), Fuel Oil and Natural Gas applying from 1 May 2012.

Betting Duty of 1% is being applied to remote betting. A  Gross Profits Tax of 15% is being charged on betting exchanges. These will commence from the second quarter of 2012, subject to EU Commission approval.

Research & Development Tax Credit – The first €100,000 of qualifying R&D expenditure will benefit from the 25% R&D tax credit on a volume basis. The tax credit will continue to apply to incremental R&D expenditure in excess of €100,000 compared to the equivalent expenditure in the base year 2003.

The outsourcing limits for sub-contracted Research & Development costs are being increased.

A portion of the R&D credit may be used to reward key employees who have been involved in the development of R&D.

The annual ‘imputed distribution’ charge on Approved Retirement Fund (ARF) assets is being increased from 5% to 6% in respect of ARFs with asset values over €2 million. This comes into effect on 31 December 2012. A similar charge will now apply to vested PRSAs with assets in excess of €2 million.

The 20% ‘final liability tax’ on the transfer of ARF assets on the death of an ARF owner to their adult children is being raised to 30%.

The current 50% employer PRSI relief for employee contributions to occupational pension schemes and other pension arrangements is being scrapped from 1 January 2012.

Capital Gains Tax Retirement Relief

The existing unlimited retirement relief from CGT for transfers of ‘qualifying assets’ to family members will be maintained for individuals aged 55 to 66. An upper limit of €3 million will apply to such transfers made by owners over 66 years, after a two year transitional period.

The current upper limit of €750,000 for assets transferred outside the family is being retained for individuals aged between 55 and 66 years. However a lower limit of €500,000 will apply to such disposals by persons over 66 years after a similar two year transitional period.