Companies claiming Ireland’s R&D tax credit can expect up to 35% of their R&D costs back, but might also worry that an audit could rip it away.
This post covers the five most common rejection triggers we see, and what you can do to protect your claim before you file.
1. Your activities don't meet Revenue's definition of R&D
This is the most fundamental rejection reason, and the one that's hardest to recover from if Revenue raises it.
Revenue's definition of R&D sets out that qualifying activities must:
- Be systematic, investigative or experimental activities
- Be in a field of science or technology
- Involve one or more of the following categories of R&D:
- Basic research
- Applied research
- Experimental development
- Basic research
- Seek to achieve scientific or technological advancement
- Involve the resolution of scientific or technological uncertainty
In plain terms, you must be trying to advance knowledge or capabilities of a scientific or technological field, and your experts must have been uncertain about whether it was possible. Applying existing knowledge to build something new isn't enough; the work must push into territory where the answer wasn't already known.
The most common mistake is claiming for development work that, while technically complex, applied known methods to produce a known type of result. Routine upgrades, aesthetic improvements, and iterative work that doesn't involve genuine technical uncertainty don't qualify.
To illustrate: building a new algorithm to solve a novel data problem where existing approaches didn't work would typically qualify. Rebuilding a website using standard frameworks and off-the-shelf tools, even if it took significant development time, wouldn't.
How to avoid this mistake
Before you claim, talk with your technical team and really drill into the work carried out. Ask honestly: was there a point where you didn't know whether this would work? Did you learn something that wasn't already known? If the answer is yes, document it in detail.
It’s important to differentiate between an uncertainty for a junior staff member and a genuine expert in the field; challenges in a project will differ for a seasoned developer and a fresh grad.
Our guides on Revenue's definition of R&D and on getting your technical team involved in an R&D claim are a good place to start.
Tax Cloud users are more confident in their R&D activities, as every project is reviewed by Tax Cloud’s R&D tax experts. To be able to submit your claim to Revenue, Tax Cloud requires users to prepare a technical report that explains their projects, which is checked by the team to ensure it meets Revenue’s standards.
2. Your documentation doesn't hold up
Revenue expects you to be able to justify your claim from contemporaneous records—not from memory, but from documents created as the work was happening. You don’t only need to qualify but also prove that you qualify.
What they're looking for includes:
- Project logs and timesheets
- Technical reports describing the R&D activity
- Sign-off records
- Evidence that the costs were actually incurred and paid (invoices, contracts, receipts, bank records)
The most common mistake here is treating documentation as an afterthought. Many companies do the R&D work, file the claim, and only then think about what records they'd need if Revenue came asking. By that point, it's too late to recreate them accurately.
If Revenue opens an audit and you can't produce the records, the credit is at risk even if the underlying R&D was genuine.
How to avoid this mistake
The fix is to build a documentation habit from the start of each project. Assign someone responsibility for keeping records, establish when you can add documentation into your existing processes, and make sure a technical report is prepared and ready before your claim is submitted.
Our guide to R&D tax credit evidence covers what Revenue typically expects in detail.
3. You missed the pre-filing notification requirement
This one catches a lot of companies off guard. If you're making an R&D tax credit claim for the first time, or if you haven't claimed for in the last three years, you're required to notify Revenue before you file. This is called a pre-filing notification (PFN).
The deadline is at least 90 days before you submit your claim. If you plan to submit your R&D tax credit claim with your original CT1, that means submitting your PFN very soon after your accounting period ends.
The latest you can submit it is 90 days before the last day of your R&D tax deadline. For a company with an accounting period ending 31 December, that means the PFN must be submitted by 2 October at the latest. In practice, the sooner the better; submit it as soon as your accounting period begins.
A common mistake is assuming the requirement only applies to first-time claimants. It also applies if you've had a gap of three or more years in your claiming history, which means companies returning to the credit after a break can find themselves non-compliant without realising it.
How to avoid this mistake
If you're unsure whether a PFN applies to your situation, treat it as mandatory. There's no downside to submitting one even if you didn't need to.
Our pre-filing notification guide walks through exactly when and how to notify Revenue.
The Tax Cloud team takes care of this as standard practice when you get in touch with us.
4. You're claiming costs that don't qualify
This comes up in two ways: either the costs aren't on the qualifying list at all, or they are qualifying costs but they haven't been treated correctly.
Costs that aren't on the qualifying list
The categories of expenditure that do qualify for the R&D tax credit are:
- Staff costs
- Subcontractors
- Agency staff
- Materials and consumables
- Overheads
- Cloud computing
- Royalty payments
- Capital expenditure
Common errors include claiming costs for work carried out outside the EEA and UK, and expenditure that was funded by a grant. These are excluded, and Revenue will remove them. For a full breakdown of what doesn't qualify, see our post on what you can't claim for.
Worth noting: the treatment of capitalised costs is an area where the rules can catch companies out, particularly where R&D assets are capitalised on the balance sheet rather than expensed.
Costs that qualify but haven't been apportioned correctly
Even where a cost is in principle qualifying, Revenue requires that it be incurred "wholly and exclusively in the carrying on of R&D activities." That means only the portion of a cost that directly contributed to R&D work can be claimed. Not the time spent before the R&D began, not the time spent after it concluded, and nothing that is routine, aesthetic, or merely associated with the R&D project rather than part of it.
Where an employee works across R&D and non-R&D activities, only the R&D portion of their time qualifies. This applies across the entire team, not just the core R&D staff.
For example, a software developer who spends 40% of their time on qualifying R&D and 60% on product maintenance can only have 40% of their salary included in the claim. If a company claims 100% of that developer's cost, Revenue will challenge it.
How to avoid this mistake
Over-claiming costs is one of the fastest ways to invite a Revenue audit. Rely on timesheets wherever possible, and make sure there's a clear, documented understanding of which activities counted as R&D and which didn't across every member of the team involved.
Companies using Tax Cloud to prepare their R&D tax credit claim have a simpler time with this, as our expert team reviews all costs and challenges anything potentially non-qualifying. In fact, users can only enter costs that qualify as standard.
5. You've fallen foul of the subcontracting rules
If you outsource some of your R&D work to external parties, the rules on what you can claim are more restrictive than many companies expect.
For unconnected third parties, the amount you can include in your claim is capped at the greater of 15% of your total qualifying R&D expenditure or €100,000. Work subcontracted to connected parties (for example, a related group company) is ineligible entirely. The same limits apply separately to work outsourced to a university or other approved body.
Here is what that looks like in practice:
Company A has total qualifying R&D expenditure of €1,000,000. 15% of that figure is €150,000, which is greater than €100,000, so the cap is €150,000. Company A paid €200,000 to an unconnected subcontractor during the year. Only €150,000 of that can be included in the claim.
Company B has total qualifying R&D expenditure of €400,000. 15% of that figure is €60,000, which is less than €100,000, so the floor of €100,000 applies instead. Company B paid €120,000 to an unconnected subcontractor. Only €100,000 qualifies.
The most common mistake is not knowing the caps apply, or calculating them incorrectly at the point of filing.
How to avoid this mistake
Map your subcontracting spend early and check it against the caps before you build your claim. Where possible, consider where R&D can be moved in-house or even spread between subcontractors and universities, as these two caps can be used separately.
Being aware of these caps and how they work is the only fix for this common error; our post on subcontracted R&D work covers the rules in full.
Making your claim
Most of these rejection triggers are avoidable with the right preparation. Tax Cloud is built to help Irish businesses put together defensible R&D claims, covering these common pitfalls as part of the process.
If you'd like help building a claim you can stand behind, get in touch and we'll walk you through it.
