Mark O’Sullivan, Partner, Research & Development Incentives, BDO: There were significant updates to the Revenue guidelines issued in July 2023, with almost all of these changes relating to the practical application of changes introduced in Finance Act 2022.
The Finance Act introduced new rules whereby the R&D tax credit will now be distributed by way of a single refundable mechanism regardless of whether a claimant is pre-trading or trading, tax paying or not, and irrespective of what the payroll liability or corporation tax position of the entity has been to date. These new rules provide for the R&D tax credit to be paid in three annual instalments as follows:
• The first instalment is the greater of €25,000 or 50% of the R&D tax credit,
• The second instalment is 3/5 of the remaining R&D tax credit, and
• The third instalment is any balance remaining.

The new guidelines set out worked examples of how these instalments operate in practice, including details of how the credit can still be used against CT liabilities and how it should be considered for preliminary tax purposes.

The new rules are applicable for accounting periods commencing on or after 1st January 2023 and are optional for accounting periods ending between 31st December 2022 and 30th December 2023 (i.e. the transitional period). The guidelines deal with how claims should be submitted within this transitional period, particularly where claimants wish to avail of an acceleration of credits owed to them for prior periods. This acceleration relates to the preceding claim period, where typically only a second instalment of a repayable amount would be due, it is possible to request both the second and third instalment of this credit be paid. The guidelines set out how a separate submission needs to be made as the current CT1 forms are not set up to accommodate this accelerated option.

Opting in to the new regime and availing of the accelerated payment option should offer a cash flow benefit for claimants who have historically been in a cash refund position. However, where a claimant is utilising the R&D tax credit against tax liabilities then it may have a negative impact if moving to the new rules during the transition period as only 50% of the value of the credit could be utilised against tax liabilities. It is important that consideration is given to these points for the transition period.

The updated guidelines have also clarified that where costs are incurred on cloud computing for the purpose of qualifying R&D then these should be considered allowable for R&D tax credit purposes.

This article appeared in the September 2023 edition of the Irish Tax Monitor.