Irish Budget 2027: What the R&D Tax Credit Changes Mean for Innovative Businesses

Budget 2027 has delivered a number of potentially significant changes to Ireland’s R&D Tax Credit regime while retaining the headline credit rate at 35%. For innovative businesses, particularly those with substantial R&D payroll costs or which rely on external technical expertise, the measures could increase both the value and accessibility of the relief.

The announcements are encouraging, but the detail will matter. The measures will need to be considered alongside the Finance Bill, enacted legislation and subsequent Revenue guidance before businesses can determine exactly how they apply in practice.

R&D Tax Credit remains at 35%

The headline R&D Tax Credit rate remains at 35% of qualifying R&D expenditure. Rather than changing the rate itself, Budget 2027 focuses on a number of areas that may broaden or enhance the benefit available to qualifying companies.

For businesses already undertaking genuine research and development, this reinforces the importance of reviewing both the technical activity and the associated qualifying expenditure carefully. A strong claim starts with establishing what work genuinely meets the R&D criteria before turning to the numbers.

Third-party subcontracting limit set to double

One of the most significant announcements is the proposed increase in the limit for qualifying R&D activities outsourced to third parties, from €100,000 to €200,000.

This could be particularly relevant for companies that need to engage specialist external expertise, testing capability, engineering support, software development or other technical resources as part of an R&D project. Businesses whose subcontracted R&D expenditure has previously been restricted should review how the higher limit could affect future claims once the detailed rules are confirmed.

Increased allowance for R&D outsourced to third-level institutions

The limit applying to qualifying R&D expenditure outsourced to universities and other qualifying third-level institutions is also set to increase, from 15% to 20% of qualifying R&D expenditure.

For businesses collaborating with universities, research bodies and academia, this could provide additional scope to recognise qualifying expenditure within an R&D claim. As with all outsourced R&D costs, the nature of the underlying activity and the contractual arrangements will remain important.

First-year payment threshold increasing to €105,000

Budget 2027 also proposes an increase in the amount of the R&D Tax Credit that can be paid in full in the first year, from €87,500 to €105,000.

For smaller, scaling and cash-intensive R&D businesses, earlier access to the benefit can make a meaningful difference to cash flow and the ability to reinvest in people, technology and further innovation.

New 5% enhancement for qualifying R&D wage costs

A new 5% enhancement relating to qualifying R&D wage costs has also been announced, subject to the relevant expenditure threshold and detailed qualifying conditions.

Employee costs are often one of the largest elements of an R&D claim, so this could be an important development for businesses carrying out R&D through their own technical teams. However, the precise mechanics of the enhancement will be critical, and companies should avoid estimating the benefit until the legislative provisions and Revenue guidance are available.

Changes for regulated clinical trials

The Budget includes a measure relating to regulated clinical trials, under which the regulated status of qualifying trials may be capable of assisting in satisfying the science test for R&D Tax Credit purposes.

This is likely to be of particular interest to businesses in pharmaceuticals, biotechnology, medical devices and the wider life sciences sector, where regulated development programmes can involve significant scientific and technical work.

Preliminary corporation tax simplification

A further measure is intended to simplify the treatment of the R&D Tax Credit when calculating preliminary corporation tax. The practical impact will become clearer once the detailed legislation and guidance are published.

Why a technical-first approach still matters

While the Budget changes may improve the value or accessibility of the credit, they do not change the need to establish that the underlying activity genuinely qualifies as R&D.

Momentum Tax Group takes a technical-first approach. We begin by understanding the project itself: what the business was trying to achieve, the scientific or technological uncertainty involved, the technical challenges encountered and how the team sought to overcome them. Only once the qualifying activity has been established do we move on to the associated costs.

That approach helps businesses prepare claims that are not simply cost-led, but are grounded in the substance of the R&D activity. It also supports stronger documentation, clearer evidence and a more robust, defensible claim position should Revenue seek further information.

Our team combines technical and tax expertise and works closely with businesses and their accountants to manage the process from technical assessment through to financial analysis and claim preparation. The focus is on ensuring companies receive the relief they are legitimately entitled to while maintaining the quality and compliance of the claim.

What should businesses do now?

The Budget announcements are positive, but businesses should not assume that every measure is immediately available. The next step is to review the relevant Finance Bill provisions, commencement dates and subsequent Revenue guidance.

Companies undertaking R&D should also consider whether the proposed changes could affect the way future projects are structured and documented, particularly where significant expenditure relates to employees, subcontractors or collaboration with third-level institutions.

For businesses already claiming the credit, this is also a useful opportunity to review whether current project records clearly demonstrate the technical basis of the claim and whether the costing methodology is supported by the underlying R&D activity.

Talk to Momentum Tax Group

If your business is undertaking R&D in Ireland, Momentum Tax Group can help you understand what the Budget 2027 changes may mean for your claim and whether your current approach is capturing qualifying activity and expenditure appropriately.

Speak to our Ireland team on 01 265 4090 or email tax@momentumtaxgroup.com to arrange a conversation.

This article is based on measures announced as part of Budget 2027. The final operation of the measures will be subject to the Finance Bill, enacted legislation and relevant Revenue guidance.

Ireland enquiries: +353 1 265 4090 | tax@momentumtaxgroup.com.