HLB Sheehan Quinn helps reduce work for SMEs by gathering all the information required in order to make a successful R&D tax claim, writes Lorraine Courtney
Ireland offers many advantages to companies looking to develop and nurture their intellectual property, Bruce Stanley, tax consulting partner at HLB Sheehan Quinn, said.
“Encouraging investment in key business sectors and activities is one of the cornerstones of taxation policy worldwide. Recognising the importance of innovation, most countries provide tax incentives to companies which own or develop intellectual property rights. These incentives help to support high-potential start-ups and attract foreign direct investment.” Currently, 22 out of the 27 EU member states offer a research and development tax credit, while 13 of the 27 also have patent box regimes in place. “As you would expect, Ireland has both, and is one of the leading research, development and innovation locations in the world,” Stanley said. “Tax reliefs are not the only reason for our success. There are other factors such as the availability of talent and government grants, but there is no doubt the Revenue incentives are a key attraction.”
The R&D tax credit is a valuable benefit for many companies, and often results in significant tax refunds, said Stanley. The credit is calculated at 25 per cent of qualifying expenditure and is used to reduce a company’s corporation tax liability. Where a company does not have any corporation tax liability, it may apply for a credit payable in three instalments.
In addition to the 25 per cent tax credit, the company can also get a tax deduction for the expenditure, which means for every €100 spent on R&D, the Revenue will effectively fund up to €37.50 of the cost. “Despite the benefits of the R&D tax credit, it is often overlooked by many companies who don’t realise they qualify,” said Stanley. “While there is general awareness that tech-based companies often qualify, there are many industries that don’t get the same publicity, such as wholesale & retail, manufacturing, construction/architecture, breweries/wineries and food sciences.
At HLB Sheehan Quinn, we help clients of all sizes from a range of sectors with their R&D claims.” One such success story is Bizimply Limited, a company that provides workforce management solutions. “We’ve been working with the company to successfully claim R&D tax credits that have provided funding as they expand and improve their award-winning and innovative product range.” “The 2019 R&D claim figures published by the Revenue this year showed that 1,601 companies made a claim of which only 198 were in the large cases division. The total cost to the exchequer was €626 million. More than half the claims were for values in the €10,000-€100,000 bracket as SMEs reported qualifying R&D expenditure of €801 million.”
If your company is developing a new product, improving a process, developing a prototype or trying to solve a technical uncertainty, then this valuable credit may be available, said Stanley. The KDB is Ireland’s “patent box” tax regime. Where income is earned from a qualifying asset, the effective corporation tax rate drops from 12.5 per cent to 6.25 per cent. “The KDB complements the R&D regime, as the company must have created the usable qualifying asset from qualifying R&D activities,” Stanley said. “Examples of qualifying assets include computer programs, inventions protected by a qualifying patent and IP for small companies which is certified by the Controller of Patents as patentable, but not patented.”
In addition to the tax benefits of developing IP, there are also tax breaks for purchased IP in the form of capital allowances. “Where a company has incurred expenditure on qualifying intangible assets (eg patents, registered designs, trademarks, copyrights) and manages or exploits those assets to generate income, then the costs incurred can be taken as a deduction against the trading income.”
“The cost can be written down in line with the company’s depreciation policy or over a period of 15 years. The company must hold the assets for a period of ten years, or there can be a clawback of the relief. The allowances granted may not reduce the income of the IP trade by more than 80 per cent in any one year.” Normally, the purchase of an asset would result in the transaction tax of stamp duty, said Stanley. “The current rate in Ireland for non-residential property is 7.5 per cent. In the absence of any relief, this would be a significant barrier to an Irish company purchasing valuable intellectual property assets. As part of the overall intellectual property package, the Revenue provides an exemption from stamp duty for acquisitions of IP, including patents, trademarks and copyrights.” Irish tax policy has a strong focus on providing incentives to innovative companies that look to develop and expand their products and services. These tax benefits should be utilised by companies of all sizes across all sectors.
HLB Sheehan Quinn helps SMEs to collate the information required in order to make a successful R&D tax claim. The time and cost of putting a claim together can often act as a deterrent for companies, but having a process in place to capture the information can reduce the strain on company resources.
“From start to finish, we help companies in the four stages of a research and development claim,” said Stanley. “Firstly, in ascertaining if their activities should qualify for the credit, secondly preparing the claim with supporting documentation, thirdly in submitting the claim within the appropriate timeframe and finally supporting the company by dealing with any Revenue audit or queries arising.”
For further information on these services, contact Bruce Stanley 01-2915 265 or firstname.lastname@example.org