Fears that updated R&D tax credit guidelines could work against SMEs

Providing research and development tax credits to businesses is seen as a sure-fire way of encouraging them to spend more on R&D. The Irish scheme, introduced in 2004, has proven popular over the years with 1,506 companies having availed of it in 2016 alone at a cost of €670 million to the exchequer.

Sure, it may cost plenty but it has also proven attractive with IDA Ireland using it over the years as an inducement when talking to multinationals weighing up whether to establish operations locally. Indigenous companies have also increasingly availed of the scheme, which allows companies to offset 25 per cent of R&D spending.

Concern has been raised, however, that new guidelines introduced by Revenue this week could lead to a drop-off in R&D investment, rather than an increase.

The updated guidelines are intended to make the application process easier. However, some industry figures have warned it potentially places additional burdens on applicants, particularly SMEs.

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"Revenue's recent amendment to the new R&D tax credit guidelines offers assistance to claimants by bringing more certainty to the application process, in particular by clarifying a number of issues and giving examples of the types of documentation that can be used by organisations to support a claim," said Derek Henry, head of R&D tax services at BDO.

Denis Hayes, managing director of Industry Research and Development Group (IRDG), a business-led body that represents more than 300 member companies, also welcomed the improved guidelines.

He said he felt Revenue was trying to be constructive and helpful but also warned they might be off-putting for some companies.

“My concern is in relation to smaller companies and the additional administrative burden this potentially places on them,” said Mr Hayes.

“If you look at the number of companies applying for tax credits, the majority are indigenous companies, although obviously their claims tend to be smaller than those made by multinationals. We’d be concerned that the updated guidelines could put off SMEs from making claims because they don’t necessarily have the resources that bigger companies have,” he added.

The Department of Finance is shortly to undertake a major review of the tax credits scheme and IRDG is hoping that as part of it, the department will look at whether some variation would be possible for SMEs that might make the process easier for them.

“We’d be hoping that it [the department] would look at the administrative issues smaller companies face so that they wouldn’t have to supply the same level of documentation and proof of evidence. Ultimately we want this scheme to work for everyone,” said Mr Hayes.

A Revenue Commissioners spokeswoman said a template file layout provided in the update “ is designed to give guidance rather than to prescribe.”