Can I Spend My R&D Tax Credits on Directors' Dividends?

A financial boost for Irish businesses

The R&D Tax Credits scheme is provided by Revenue to help cover a company’s costs in relation to research and development. The Irish government recognises that innovative projects can be almost prohibitively expensive for many organisations, which is why the scheme was launched back in the early 2000s.

How Tax Cloud can get you the funding your company deserves

Myriad Associates (the name behind the Tax Cloud portal) is based in the heart of Dublin, plus we also have additional offices in the UK. We’ve been in business for nearly two decades, specialising solely and entirely in R&D Tax Credits. Over the years, this has meant we’ve become highly skilled professionals in our field, giving rise to our prestigious 100% success rate.

The fact is that R&D Tax Credits are not always easy to obtain. There are strict application criteria laid out by Revenue, with the requirement for in-depth financial data and a separate highly effective, detailed narrative. The onus is on companies not to simply just list their costs, but to actively demonstrate the percentage of R&D costs within a piece of work. Companies must also justify the project itself, and why they believe R&D Tax Credits should be awarded. If Revenue suspects an inaccurate claim, it can launch a long, stressful and costly tax investigation. Why risk it?

When you use the Tax Cloud R&D Tax Credit portal, we will work with you every step of the way to put together a fully optimised, accurate claim. This means you won’t waste time on an application that won’t make it out of the starting blocks, and you can rest assured that the process will be as hassle-free and as successful as possible.

What is the R&D Tax Credits scheme about?

Businesses that are innovative usually end up growing exponentially. They may take on more employees, build more sites and have far more suppliers. Over time, not only do these innovative projects bring numerous benefits to the company itself, but also to the wider economy too.

What kinds of projects and costs are eligible for R&D Tax Credits?

This is the good news - the scope of applicable projects is purposefully incredibly broad. Essentially, if a company has invested money in developing a brand-new product, service or process, or has substantially improved one that already exists, then it’s likely to be eligible for R&D Tax Credits. Additionally, financial risks must have been taken in making advancements in science and/or technology in the field the business is in.

In terms of costs, again the scope for R&D Tax Credits coverage is extremely broad.

Such costs include costs such as:

• Staff wages, salaries and overtime payments
• Materials and overheads used in the R&D process
• Subcontractor and freelancer costs

Again, at Tax Cloud this is something we can assist you with and answer any questions you may have.

How much R&D Credit can be claimed?

As mentioned, a very generous and valuable tax credit of 25% will apply to the entire amount of eligible R&D costs that a company has spent on relevant R&D activities. This credit is offered over and above the normal 12.5% revenue deduction provided for the R&D expenditure, which results in a total benefit of 37.5%.

What can companies spend their R&D Tax Credits on?

This is entirely up to the company - and yes, this may include paying director’s dividends if required. However, this isn’t always as straightforward as it sounds.

When making a claim in the first place, R&D Tax Credits are offered in respect of staffing and contractor costs, but correctly categorising payments made to directors is crucial. Again, get it wrong and Revenue will take a dim view. The problem is that paying a director could potentially fit into either staffing costs, subcontractor costs or externally provided workers costs – which should you choose? Tax Cloud can help you with this.

Most companies use the financial boost they receive from R&D Tax Credits to reinvest in the business, and often in further R&D projects. Some companies pay off debts or use it to pay for more resources. Once a successful claim has been achieved with us, we’ve found it makes companies more confident in applying the following year and the positive cycle of innovation continues.

What about premises used in R&D work?

A different R&D Tax Credit is offered when it comes to money spent on constructing or renovating an eligible R&D building. To be included in a claim, at least 35% of the building must have been used for relevant R&D work, with this threshold being measured over a period of four years. The benefit is particularly useful when R&D is done within a manufacturing environment, for example.

The R&D Tax Credit on offer is equal to 25% of the costs incurred on the building or renovating of an eligible premise, and the amount received will reflect R&D use.

The beauty of R&D Tax Credits is that the scheme can benefit both profit and loss-making companies and, whether the project achieved its aims or not is irrelevant. It’s about the journey of research and the scientific/technological advancement along the way - not the ‘destination’.

R&D Tax Credits can be used to offset a company’s current year Corporation Tax bill in the first instance. If there’s an excess, it can be carried back for use against the Corporation Tax bill of the year before, to generate a tax refund. If there is still further excess, this can be received in cash over a three-year cycle.

Get in touch with R&D Tax Credit specialists

As you’re probably starting to see, R&D Tax Credits are an incredibly complex and niche area of accounting. The Tax Cloud team is made up of a mix of Myriad Associates R&D specialists and advisors who can help you detangle the issues around directors’ payments and accurately collecting together eligible costs.

Call us today on +353 1 566 2001 or use our contact form and one of us will be pleased to get back to you. Don’t forget to also find everything you need to know on our R&D Tax Credits webpage.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud