Why Budget 2026 Is a Game-Changer for R&D in Ireland — and What Businesses Should Do Next

Ireland’s Budget 2026 delivered a bold signal on innovation: the headline R&D tax credit rate rises from 30 % to 35 %. That increase, coupled with additional targeted reforms, makes now a pivotal moment for firms — indigenous and multinationals alike — to reassess their R&D strategy and tax planning.

At Momentum Tax Group, we see these changes as more than tweaks — they reflect a shift in Ireland’s approach to incentivising innovation. Below is our take on what’s new, where opportunities lie, and how to act to capitalise on the enhanced regime.

What’s New: Key R&D Incentives in Budget 2026

Here are the principal changes to the R&D tax credit regime in Budget 2026:

1. Rate increase from 30% to 35%

The headline R&D tax credit rate will jump to 35%. This boost strengthens the return on R&D investment and enhances Ireland’s positioning versus competing jurisdictions.

2. Higher first-year refund threshold: up to €87,500

Previously, a company could access up to €75,000 of the credit as a cash refund in the first year. Under the new rules, that threshold increases to €87,500. For claims between €87,500 and €175,000, a quicker refund mechanism also applies.

This change helps smaller and earlier-stage R&D projects access cash benefit sooner, improving cash flow and reducing the barrier to incremental investment.

3. Administrative simplification for R&D employee costs

A notably pro-business tweak: where an employee spends ≥ 95 % of their time on qualifying R&D, 100 % of their emoluments can now be treated as qualifying expenditure. In prior practice, Revenue would often disallow or discount portions attributable to training, HR, or administrative duties. This change reduces administration, increases certainty, better aligns with how R&D personnel are deployed, and, importantly, increases the value of the claim.

4. “R&D Compass” & consultation on further reforms

Minister Donohoe committed to publishing a Research & Development Compass in the coming weeks — a road map meant to explore more targeted reforms to the R&D tax regime. Among the areas flagged for potential review:

• Outsourcing (especially to universities or third parties) and the current restrictions on outsourced work.
• Broader definitions of qualifying expenditure, to better reflect modern R&D practices.

These changes could open the door to new claimable categories and improve alignment with how many companies structure their R&D activity today.

What the Enhancements Mean for Businesses

Enhanced return on investment: The jump from 30% to 35% is more than symbolic: it materially increases the tax-adjusted return on R&D projects. For many companies, that margin will tip previously borderline projects into viability - especially in strategic or nascent technology areas.

Better cash flow for smaller claims:  Smaller R&D teams or early-stage projects often struggle with timing and liquidity. The higher first-year refund threshold means more of those credits will become accessible as cash earlier, reducing the financial friction for innovation investment.

Less administrative friction & more certainty:  By allowing full employee cost treatment (under the ≥95 % rule), the changes remove some of the ambiguity and challenge around apportionment and documentation. This reduces compliance risk and planning burden, particularly for firms scaling their R&D headcount.

A more flexible, evolving regime:  The R&D Compass promises to keep the regime dynamic and better calibrated to real-world R&D. Companies will want to engage with the consultation and monitor developments, particularly if they rely on outsourced R&D, cross-border collaboration, or hybrid innovation models.

Key caveats & considerations

• The regime still includes expenditure and outsourcing restrictions, especially regarding connected parties.
• Optimising the benefit will require sound technical substantiation, appropriate documentation, and careful planning of project boundaries.
• The Compass may bring changes that affect existing or future claims; businesses should remain agile in their planning.

How Momentum Tax Group Can Help You Respond to Budget 2026

At Momentum Tax Group, our focus is on technical-first R&D advisory: not just checking boxes, but structuring claims robustly, defensibly, and strategically. Here’s how we can help your business make the most of the new regime:

1. Review your R&D portfolio
   We can reassess and advise on your pipeline of R&D projects and costs, identifying which initiatives are now newly viable under the higher rate, and where incremental investment could yield strong ROI.
2. Refine cost allocations
   With the new employee cost rule, we’ll ensure your time tracking, cost apportionment, and documentation support full qualifying treatment for those dedicating ≥ 95% to R&D tasks.
3. Cash-flow planning
   We’ll help structure your claims to ensure compliance and you fully optimise first-year refunds under the €87,500 threshold, and advise on how to phase claims optimally.
4. Outsourcing and collaboration strategies
   As the Compass may reshape outsourcing rules, we can evaluate your existing contracts, R&D partnerships, and intercompany arrangements to ensure they remain within qualifying parameters.
5. Stay ahead of the Compass reforms
   We can monitor policy developments and proactively advise how to adapt, so you're not playing catch-up when changes land.

Don’t Wait - Act Now!

Budget 2026’s enhancements reset the calculus for R&D investment in Ireland. But the full benefit doesn’t accrue by default, it requires forethought, technical structuring, and ongoing alignment with evolving policy. If your business undertakes or is planning innovation activity in Ireland, this is the time to act.

If you'd like to discuss how your R&D projects can benefit from the new 35% rate, how to maximise your R&D Tax Relief benefit, or how to prepare for forthcoming changes under the R&D Compass, we’d love to help.

Let’s map out your plan for growth under the enhanced Irish R&D regime.  If you'd like a no-obligation review or just a second opinion on your tax incentive claims, contact Momentum Tax Group on Dublin 1 265 4090 or our Head Office +44 28 9140 4030, or email tax@momentumtaxgroup.com