Ireland has designed its tax laws to encourage innovation through research and development, with the goal of creating employment and keeping us competitive in a global marketplace. These tax laws apply to all companies, from large multinationals to start-ups. However, the uptake from start-ups is often low because of how complex the process of claiming R&D tax credits is. It can be intimidating for a fledgling business to submit their own claim, especially when they aren’t sure what they are or aren’t entitled to, or even whether they’re making their application correctly
At ProfitPal, we are a team of experienced accountants, tax and technical advisors, specialising in every financial aspect of the start-up Founder’s scaling journey. In particular, we have an exceptional track record when it comes to completing successful R&D tax credit claims for our clients. With a clientele focused in the tech start-up sector, we have been able to perfect our process to gain clients the maximum cash refunds they are entitled to. In 8 years, we have submitted over 200 claims to Revenue, with a 100% success rate. This has resulted in our clients receiving over €20 million in tax refunds.
Below, I will go a little bit more into our process, and how your company can qualify for receiving R&D credits. But first, a quick definition for the layperson…
What Are R&D Tax Credits, and How Do They Work?
R&D tax credits are reimbursements on the money a company spends on Research and Development. The tax credits amount to 25% of the money spent on R&D. The company can receive these as either a cash refund or a reduction in corporation tax. In order to qualify to receive R&D tax credits, the company must be registered in Ireland. The internal R&D being claimed for must have taken place in the European Economic Area (EEA).
What Is the Framework for Applying for R&D Tax Credits in Ireland?
In this context, ‘research and development activities’ which can qualify a company for R&D tax credits can be one or more of the following:
- Basic research: theoretical work with the primary aim being to gain scientific or technical knowledge, without intending to put it to any specific practical use
- Applied research: work aiming to gain scientific or technical knowledge and put it to a specific practical use
- Experimental development: work that draws on existing scientific or technical knowledge for the purpose of creating new materials, products or devices – or improving what we already have.
Note: Most tech start-ups in Ireland will have no basic research and a small amount of applied research. They will also predominantly be involved in experimental development.
Intent and Results
In terms of intent and results, to officially qualify as ‘research and development’, the activities in question must:
- Be seeking to achieve scientific or technological advancement
- Resolve a scientific or technological uncertainty
Clearly, that’s a very vague definition as to what does and doesn’t qualify as R&D in the eyes of Revenue. This is deliberately so, as their definition can be applied across all industries. However, this means the process of claiming the tax credits you’re entitled to can be complicated and frustrating for a busy start-up company. Add to that the consequences of getting it wrong. Revenue audits can place a significant burden on business operations, both in terms of cost and logistics.
It’s little wonder that many see the world of R&D tax claims as a minefield they must navigate carefully, or even avoid altogether. And yet, R&D can eat up a considerable part of a new start-up’s budget. R&D refunds can provide much-needed capital that will help you to stretch your runway and continue to scale until you attract investors and reach sustainability.
So what’s the best path to take, to get what you’re entitled to without stumbling during the claims process?
Basic Guidelines to Follow for Maximising Your R&D Tax Claims
- Don’t do it yourself. R&D tax claims are a technical quagmire for those unfamiliar with the interaction of tax legislation and technical requirements.
- Hire a professional who has significant successful expertise in making these claims. An expert in both the tax/accounting as well as the technical aspects of your claim… This is not for the novice.
- Opt for a success only service fee arrangement
ProfitPal: 8 Years of Expertise and a 100% Success Rate
At ProfitPal, we specialise in R&D claims, particularly for software development companies. We have a tried and true method that has seen us bring in over €20 million in R&D refunds for our clients. To quickly summarise, first we perform an assessment of your project(s), as to whether it will qualify as research and development in the eyes of Revenue. We discuss with our client what operating and capital expenditure we are able to make claims on, and then we do a comprehensive assessment of the potential refunds the client has a tenable claim for.
We understand the importance of cash refunds for software development companies, many of whom are in the pre-revenue or early revenue stages. Raising capital through R&D claims lengthens your runway and avoids investment dilution. As an outsourced finance department, our fees are only payable if and when refunds reach your bank account. What’s more, you can rest assured that we have a 100% success rate in having our clients’ claims approved.
Don’t do it alone. Get in touch with us, and we’ll give you our professional opinion on where your case for claiming for R&D stands, and we’ll advise you on how we can best help you moving forward. We complete numerous submissions each year for some of Ireland’s leading software companies. You can read about our process here at: https://profitpal.ie/research-and-development/.