The changes introduced in the Bill are as follows:
A new three-year fixed payment regime is being introduced for claiming the R&D tax credit. Under this new regime, a company can claim the R&D tax credit in cash in three fixed instalments, or a company can specify that any part of each instalment be offset against other tax liabilities of the company.
The caps on payable R&D tax credit claims will no longer apply.
Transitional measures have been introduced for a period of one year to smooth out the transition to the new three-year fixed payments regime.
Companies can claim at least the first €25,000 of an R&D tax credit as payable in the first year. This will benefit companies with particularly small R&D tax credit claims.
Companies will have the ability to claim pre-trading expenditure as a payable credit over a three-year period from when a company commences to trade.
Our Analysis
The backdrop to the introduction of these changes is international tax reform. The new regime means that companies will claim the credit in three fixed payment instalments. These instalments can be claimed as cash payments or as an offset of other tax liabilities. The regime provides for 50% of the credit to be payable in instalment one, three-fifths of the balance of the credit in instalment two and the balance remaining in instalment three. This differs from the current regime where a company is required utilise their R&D tax credit in the first instance to reduce their corporation tax liability.
The removal of the limits on payable R&D tax credits is a positive change. Companies will no longer have to undertake complex calculations to determine the cap that applies to their payable claims. This will help companies realise value for R&D tax credit claim amounts that were previously capped in a more accelerated manner. This may be particularly relevant for companies making large capital R&D investments in Ireland.
Two specific changes will benefit small and medium-sized companies. The first is that €25,000 of any R&D tax credit claim will be payable in the first year of a claim. This will help cash flow for companies with small R&D tax credit claims. In addition, companies that incur R&D expenditure in pre-trading periods will be able to claim a payable credit for this when they begin to trade.
The new regime is being introduced with effect for accounting periods commencing on or after 1 January 2022. Transitional rules also apply, which allow companies to make a claim under the current regime for accounting periods beginning on or after 1 January 2022 but no later than 31 December 2022. This essentially provides for a one-year transition period to the new regime. The transitional rules also permit payable R&D tax credit instalments that are carried forward from accounting periods that commenced before 1 January 2022 (i.e. payable instalments two and three) to be claimed in the accounting period commencing on or after 1 January 2022. This allows instalments carried forward under the current regime to be dealt with in 2022 tax returns.
We are here to help you
Our experienced and multi-disciplinary R&D tax credit team are available to help you with your R&D tax credit claim needs, understand the impact of these changes on your R&D tax claims, and explain the options under the new regime. Contact us today.
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