In April 2023, the Irish Revenue Commissioners (Revenue) published statistics across various aspects of the R&D tax credit (RDTC).
The statistics tell a broader story about the performance of the RDTC, the companies engaging with the regime, and its performance against similar regimes in other jurisdictions. Since its introduction in 2004, Ireland's RDTC regime has been instrumental in encouraging companies to invest in R&D, fostering innovation, and driving economic growth. The regime has undergone numerous changes over the years, many of which have aimed to incentivise increased participation in R&D activities in Ireland.
The statistics published by Revenue on foot of the completed 2021 corporation tax filings offer valuable insights into the participation and success of what is one of Ireland's key FDI offerings.
Record number of claims, record high R&D spend
A total of 1,629 RDTC claims were filed for 2021. This is the highest-ever number of claims, albeit just a 1% increase on 2020. The average RDTC amounts to €462k, again a record number only beaten by the average RDTC amounts in 2004 and 2005 of €481k and €532k, respectively (Note: in 2004 and 2005, just 135 and 141 claims were filed. At this time, small and micro companies had a much smaller participation rate in the regime).
A record €3.47B R&D spend per the 2021 corporation tax filings represents a 12% increase on 2020. The lion's share of the R&D spend (77%) was from large enterprises (>250 employees), while SMEs accounted for 23% of the spending. This resulted in RDTCs claimed of €1.29B, again a record figure.
55% of claimants had CT liabilities against which to offset the credit in part or in full, meaning 45% availed on the RDTC in the form of refundable cash instalments. The refundable element is important in the context of recent efforts by the Irish government to incentivise small and micro companies to engage in R&D. The RDTC provides a valuable source of innovation funding for pre-Revenue start-ups.
Which sectors are performing best?
The Information & Communication Technology (ICT) sector continues to outperform other areas, making up 35% of the total number of RDTC claims in each of 2019, 2020 and 2021, albeit accounting for 16% of total RDTCs claimed in 2021. This reflects the many small start-ups in this sector. ICT accounted for 22% of the total claims in the UK in the same period. The manufacturing sector accounted for 26% of the total claims but 60% of total RDTCs claimed.
Who is benefiting from these RDTCs?
In recent Budgets, the Irish government have actively sought to further incentivise participation in the RDTC regime among small and micro companies by introducing measures aimed at companies with lower R&D spend. In 2021, 65% of claimants had less than 50 employees, while 31% had less than ten employees. This trend has been relatively stable in recent times, even decreasing in the years 2019 to 2021.
These statistics provide interesting insights into the performance of Ireland's RDTC regime. Ireland's RDTC regime remains a strong performer in an increasingly competitive international landscape. Finance Act 2022 introduced numerous key changes to the RDTC regime. Claimants can look forward to deriving the benefit of positive changes made regarding refundable R&D instalments. These changes will mostly benefit the small and micro companies the Irish government has sought to incentivise.
The changes will see tax credits issued in 3 x refundable instalments of 50%, 30%, and 20% over three years or payable in full in year one, where the credit does not exceed €25k. Up to 2022, 3 x refundable instalments of approximately equal value were due over three years, with no such full payout where the RDTC was minimal. While these changes are more conducive to the participation of small and micro companies in R&D in Ireland, they continue to lag behind the UK, which provides for an upfront benefit in full on year 1.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars tax team.
Mazars was delighted to participate in the 2023 annual tax advisors survey with the Business Plus, which was published in November. Frank Green, Head of Tax, responds to editor Nick Mulcahy’s questions.