2022 Corporation Tax filings and R&D claim considerations

Finance Act 2022 brought about a number of key changes in relation to the R&D tax credit (RDTC) regime.

These changes will impact the utilisation and payout of the credit for the many companies with a 31 Dec 2022 year end. The Corporation Tax (CT) filings for these periods will also be impacted.

Background (Pre-Finance Act 2022)

“Old Rules”

The RDTC, administered under s766 TCA, provides for a 25% credit on qualifying expenditure.

The credit is utilized as follows:

  1. Offset against CT liabilities, if any, of the period to which the credit relates.
  2. Offset against CT liabilities, if any, of the prior period.
  3. Refundable as follows:

                                 i.            33% refundable in Year 1.

                               ii.            50% of the remainder refundable in Year 2 *.

                             iii.            Remaining excess refundable in Year 3 *.

Therefore, 3 refundable instalments of approximately equal value (c. 33%) where the credit exceeds CT liabilities, if any.

The instalments listed above issue no sooner than the CT filing deadline for the period in which the claim is made. Therefore, a company with nil CT liabilities every year and a 31 Dec accounting period would see its instalments issue no sooner than 23 September (this being the CT filing deadline) in years 1, 2 & 3.

*Note: credit will be offset against future CT liabilities, if any, in priority to refundable instalments.

Finance Act 2022

“New Rules”

Finance Act 2022 introduced a new section of the legislation (s766C TCA - Research and Development Corporation Tax Credit (RDTCC)).

Under s766C TCA, the tax credit will now be paid out to all claimants, regardless of CT position, in three instalments over three years.

Companies with credits of more than €50,000 will receive the three refunds over three years on a 50%, 30%, and 20% split.

Where the R&D tax credit is €25,000 or less, the refund will be issued in full in year 1.

The instalments are payable upon the filing of the Corporation Tax Return (CT1).

The company will be able to choose between offsetting the RDTC against its tax liabilities or receiving payment directly.

“Old Rules”

Finance Act 2022 introduced changes in relation to the repayments of refundable instalments due under s766 TCA, whereby companies will have the option to accelerate the repayment of refundable instalments carried forward from prior periods.

Options for companies with a 31 December 22 accounting period end

A company may only make a claim, in respect of qualifying expenditure incurred in a 31 December 22 accounting period end, under the R&D tax credit (RDTC) (s766 TCA - “Old Rules”)) or the R&D corporation tax credit (RDTCC) (s766C TCA - “New Rules”).

Companies with minimal or nil CT liabilities are likely to benefit best from s766C TCA. Companies with credits of €25,000 or less are also likely to be best served under s766C TCA in order to receive the full payout in year 1.

Companies with considerable CT liabilities may consider s766 TCA more beneficial.

Companies seeking to claim the first instalment of 2022 under s766C TCA and seeking to claim for the accelerated repayment of instalments carried forward from prior accounting periods will be obliged to file their Corporation Tax Return (CT1) in addition to completing the R&D corporation specified return 2022.

The recently amended Revenue R&D guidelines provide detailed guidance in relation to the filing of the RDTCC under s766C TCA and claiming any accelerated repayment of instalments carried forward from prior accounting periods under s766 TCA (see sections 2.2.2 and  8.6.1 of the guidelines).

Future CT filings

766C TCA (“New Rules”) will take effect in full for accounting periods commencing on or after 01 January 2023.

Claims for the R&D corporation tax credit (RDTCC) from 2023 onwards will not require the completion of an R&D specified return and can be made by completing the relevant sections of the CT1 through ROS.

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