Don’t forget to claim your R&D Tax back by Sept 23rd


You don’t really need to create a living electrical capacitor in order to claim R&D tax relief, but if you did you can take it that you’re eligible even if the outcome was a freak accident.

Here’s how it works. 

You quantify the costs relating to R&D in any given year. There is a lot of criteria relating to what constitutes R&D but it boils down to two key considerations and ensuring the work can be attributed to them.

What is the specific scientific or technological advancement which the company sought to achieve?

What is the specific scientific or technological uncertainty, which the company sought to resolve?

For the most part the costs of R&D are going to be made up of wages or contractor fees.

And will exclude wages relating to scoping, marketing and selling.

All claims for research and development tax credit must be made within 12 months from the end of the accounting period in which the expenditure was incurred. Therefore you have until 31st December 2014 to go back and claim for R&D incurred in the year to 31st December 2013. However you would be better off claiming your credit by 21st September 2014 along with your regular CT1 return as otherwise you would have to submit an amended CT1 later.

What you can claim.

Firstly you are allowed the normal deductions – You claim the R&D expenditure as part of your yearly costs allowable against any profits you may have.

Subsequently you can claim a refund of 25% of the expenditure. So if you incurred 100K R&D you can expense this against profits and then claim an additional 25K back from revenue.

The order of the claim is as follows.

1. You offset the 25K ( from above ) against current year corporation tax

2. You offset any remaining portion of the 25K ( from 1 ) against previous year corporation tax

3. You carry forward the remainder ( from 2 ) into the following years where you claim 33% of the remainder in each of the next 3 years.

The issue with No 3 above is that there is a restriction on the amount you can carry forward and this is  capped at the greater of the total Corp Tax (CT) liability for the past 10yrs or the Total payroll taxes ( IT, PRSI er+ee & USC  ) in the period the R&D expenditure was incurred and the year before.

Ok so in English here’s a typical example.

Tom has a tech startup,

In year one ( 2012 ) he incurs losses of 200K

In year two ( 2013 ) he incurs losses of 180K

Included in the 180K is 100k of legitimate R&D expenditure

So first thing is that Tom has no previous corp tax liabilities so he can only carry the claim forward and this is restricted to the last 10 yrs of ct, which is nil or the payroll taxes of the year the r&d was incurred 2013 and the yr before 2012.

Tom incurred 32k in total payroll taxes in the initial two years and therefore can claim the R&D tax credit of 25k back over the following 3 years on the 2015, 2016 and 2017 CT1 returns.

There is a provision whereby the refund could be claimed earlier but not earlier than the date you file the current CT1 return. So lets say you returned your CT1 in Mar-14 for the year 2013, you could claim your first 33% refund in April 2014.

Bottom Line

If you have incurred R&D expenditure and have incurred payroll taxes then you can get a refund even if you don’t have profits.