Research and Development Credit

The Finance Bill affirms amendments to the R&D credit announced in the Budget. These measures include:

• The first €100,000 of qualifying R&D expenditure can be claimed as an R&D credit. The balance of the qualifying expenditure can be claimed as a credit subject to the incremental expenditure over the 2003 base year expenditure.
• Subcontracted R&D expenditure may qualify for the R&D credit where such expenditure does not exceed 10% of the total R&D expenditure or 5% in the case of outsourcing to third level institutions. Finance Bill 2012 increases the limits for subcontracting R&D costs to the higher of 5% in the case of outsourcing to universities/ 10% in the case of other organisations or up to €100,000. The claimant company must notify the subcontractor in writing that it cannot also claim the R&D credit.
• Companies paying corporation tax have the option to surrender a portion of the R&D credit to reward key employees involved in the development of R&D. While the option to reward key employees involved in the development of R&D is a necessary measure, the relief is restricted to higher earners as the effective rate payable by the employee cannot be reduced below 23%. The employee can carry forward any used credit for relief in subsequent tax years. Arguably, this form of relief would be of more assistance to companies in their start up phase before they start making profits, but instead it is limited to profit making (and therefore CT paying) entities.

Three Year Tax Relief for Start Up Companies

The scheme which provided relief from corporation tax on the trading income and certain gains of new start-up companies in the first 3 years of trading is extended to include start- up companies which commence a new trade in 2012, 2013 or 2014. The only companies this “relief” applies to are those which are unlikely to make profits in any event in their early years, due to their necessary capital investment. Less capital intensive professional services remain excluded from the relief.