By Brian Cookson
The R&D Tax Credit Relief is a significant benefit afforded to companies in Ireland that undertake qualifying R&D activity. It is the most expansive tax incentive currently offered by the state, which stood at circa €690 million for 2016.
In making an R&D tax claim, you need to have two objectives; claim every euro you are entitled to and ensure that you will withstand a Revenue intervention with no claw-back of tax credits. While these two objectives might seem to be at cross purposes, they each require a different focus.
Here are some key tips on how to maximize your R&D tax credit claim:
- Consider all development projects
This may seem obvious, but you would be surprised to know how many companies do not keep a complete list of development projects. Many companies miss out on claiming eligible projects simply because they forget about them
- Set up a system
This brings us to setting up an R&D tax credit system. Most businesses already have the basics for an R&D tax credit system and need only a bit of tweaking. Our Innovation Connection Program (ICP) is designed to install an R&D tax credit system quickly. By setting up a system you keep the needed data real time, so projects, activities and costs are not missed. This way, you can have the claim ready at year with no last-minute rushes to remember what you did last year and try to meet the deadline.
- Define R&D projects by technology, not product
The benefit of selecting projects defined by technology is that fewer projects need to be claimed, and you can usually group smaller projects into a larger one. The smaller projects could be those that you may not have bothered claiming. This practice can maximize the costs that you can claim.
- Know your qualifying costs and activities
Once you have selected the eligible R&D projects, you need to pick all eligible activities and costs. There are many nuances and it helps to develop a checklist that you can review to ensure you maximize this area. Checklists always work!
- When you have a draft of the R&D tax credit claim, take another look at it with your team. Find out what you didn’t claim to ensure you didn’t miss anything. Also review things like staff organizational chart, list of work orders/job orders or similar documents to ensure all costs were claimed.
Now we turn to Revenue Interventions
Revenue interventions occur to ensure businesses comply with R&D tax credit qualification criteria. Such interventions have increased substantially, by as much as 50% between 2015 and 2016. As the level of claims increases, intervention levels by Revenue will also increase. The average clawback from Revenue interventions on R&D claims in 2015 was nearly €80k.
As a self-assessment system, claimant companies are responsible for ensuring their claims meet all of the criteria to pass Revenue’s “science test” and “accounting test”. Revenue interventions can require claimants to undertake these tests on claimed R&D projects as far back as five years prior to the intervention.
Sadly, most of the clawbacks could have been prevented if the company had kept supporting documentation for their claims. With an R&D tax credit system like ICP, you need less than an hour a month to identify, capture, and document R&D projects.
The other area of clawback relates to claiming projects that do not meet the definition of R&D. We generally review the claims before they are submitted to ensure compliance. However, most claims are disallowed because they are prepared with little or no attention to details and thus lack technological uncertainty. For example, some projects are complex and contain significant amount of data to manipulate or assemble, but lack any technological obstacle to overcome.
In our three decades of work in various markets working on R&D tax credit claims, we have leveraged our Risk and Compliance Audit service to help companies identify and mitigate their risk exposure to possible Revenue interventions. It also serves to identify internal process improvements, which streamline a client’s R&D claims processes, leading to maximization of their return, while minimising risk.
— RDP Associates (@RDP_Associates) October 31, 2017
For a no-obligation discussion on how our experts can assist you to identify and mitigate the risks associated with your R&D tax credit claims, please contact us:
Brian Cookson is Managing Director and President at RDP Associates.
He writes and lectures extensively on R&D tax credits in different markets and presents seminars to industry groups and executives. He consults continuously with companies that have significant R&D tax credit issues and negotiates on behalf of them with government representatives.