We have recently received new comments regarding Revenue’s position on certain R&D tax credit issues. When you file a R&D tax credit claim, all is good until you receive a query letter from Revenue. Revenue queries a very large number of claims each year, much more than HMRC under the UK R&D tax credit program.
Here are some tips I have based on preparing many R&D tax credit claims;
- If you or a client are in an industry that typically is not known to be innovative, this fact needs to addressed upfront. For example, say you have a client that is a recruiter and they developed some bespoke software to make operations more efficient, and that required R&D. There have been cases when a Revenue inspector has stated they don’t see how such a company in an industry could be carrying out R&D. While this demonstrates an incorrect view of the R&D tax credit program, your client needs to address this fact before the inspector gets a first impression that is difficult to change.
- Watch out for R&D expenditures that are misaligned. For example, let’s say a medical device company claims €300K of materials and €40K of R&D salaries. This will raise a red flag in that the materials cost will appear too high to an inspector and out of proportion to the labour effort. Again this needs to be addressed in the report.
- Be careful if you have no one in house with the technical background to direct or carry out R&D. There is no requirement that there be in house staff to conduct the R&D. In theory, you could subcontract out all R&D work to Irish contractors (note: if you claim for contractors outside of Ireland, you are limited to the amount of in house R&D spend). However, Revenue seems to take a dim view of this situation. Again it is advisable to address this issue upfront.
If you or any client are wishing to make an R&D tax credit claim or you simply are not sure if you or your client qualify to make a R&D tax credit claim, please do not hesitate to contact me at firstname.lastname@example.org. We do not charge for R&D tax credit assessments to determine eligibility.