Why Ireland’s SMEs need a larger slice of the R&D Tax Credit cake

Ireland has massive ambitions to be a global Research & Development (R&D) powerhouse with far reaching plans to maximise its impacts across the economy, society and the environment.

In August, the government launched (Taighde Éireann) Research Ireland, the country’s new competitive research and innovation funding agency.

The new agency amalgamates the Irish Research Council (IRC) and Science Foundation Ireland (SFI) and will capitalise on the recognised strengths of these two agencies in driving world class research and innovation in Ireland.

Research Ireland was a keystone of Impact 2030, Ireland’s Research and Innovation Strategy which seeks to put the full spectrum of research, development and innovation at the heart of addressing some of the country’s biggest challenges.

One of the pillars of the strategy seeks to broaden and deepen enterprise innovation capability with a focus on indigenous SMEs.

Put simply, Ireland wants to be an R&D leader. And, with over 300,000 SMEs forming the backbone of the Irish economy, the government knows smaller businesses need support.

In 2022, Ireland’s SMEs accounted for 99.8% of all businesses in Ireland and more than two thirds (68%) of the workforce, according to the latest statistics from the CSO.

Speaking at the strategy’s launch, the then Minister for Further and Higher Education, Research, Innovation and Science, Simon Harris TD said it would make Ireland a leader.

He said: “Impact 2030 will strengthen our support for all-island, EU and global research collaboration, guaranteeing our position as an ‘International Island’, a leader in research and innovation on the international stage.”

There has been a real step change over the past two decades when it comes to R&D work across the country.

Ireland has gone from having around 800 R&D active firms to having more than 1,600 in 2022.

While the increase in R&D work is admirable, it appears the playing field may not be a level one.

The latest figures reveal almost €1.5bn was claimed in R&D Tax Credits in 2022. This is up from just over €1.3bn in 2021.

In terms of sectors, the largest number of claims came from the Information and Communications industry (588) followed by the manufacturing sector (431). However, when it came to the value of claims, €750m went to manufacturing while €135m went to Information and Communications.

A notable statistic shows that €923m of the 2022 total came from claims from large companies (250+ employees) while businesses with less than 10 employees accounted for just €29m.

Smaller businesses across Ireland aren’t getting a decent slice of the R&D Tax Relief cake.

But if Ireland is to realise the ambitions contained within the Impact 2030 strategy, there needs to be a significant uplift in the number of smaller businesses claiming R&D Tax Relief.

And there has never been a better time.

From January 1, 2024, Revenue has increased the R&D Tax Credit rate from 25% to 30% under the Finance (No.2) Act 2023.

It means that a 30% tax credit is now applied to the full amount of qualifying R&D spend.

The credit is paid in three instalments with 50% in the first year, 30% in year two and 20% in the third year. Although, under the Act, companies can now claim the first €50,000, doubled from €25,000, as payable in year one.

Companies can opt to have the instalments paid by Revenue in each year or, have them viewed as a tax overpayment to offset liabilities such as corporation tax.

At the Momentum Tax Group, it never ceases to amaze us just how much qualifying work already goes on at small businesses the length and breadth of the country. Yet too few businesses are claiming the relief they are entitled to.

R&D Tax Relief can help innovative businesses grow, create more employment and tackle the big issues challenging us all.

We know there are often good reasons for the poor take-up of R&D Tax Relief within the SME community. It usually comes down to the time it takes to complete returns and the perceived tedious nature of the process.

With offices in Dublin the Momentum Tax Group stands ready to support Irish SMEs and the wider business community in securing the R&D Tax Relief their work deserves.

We want to be a partner of choice and operate like an extension of your company, establishing long-term relationships with the people we work with.

If you are already doing the work, then you should be receiving this benefit, but we understand not everyone has the experience, or time, to identify what expenditure does and doesn’t qualify as R&D.

Our highly experienced tax and technical team can save you time and money by identifying, analysing and optimising your R&D opportunities.

Speak to one of our team today. Tel: 01 2654090 or email
tax@momentumtaxgroup.ie