If your company claims Ireland's R&D tax credit, Budget 2027 has some welcome news. The credit stays at 35%, but you'll be able to include more subcontracted spend, receive more of your credit in the first year, and potentially add a 5% uplift on your R&D wage costs.
Here's what has been announced, what each change could be worth in practice, and what we're still waiting to hear from the Finance Bill.
What has Budget 2027 changed for the R&D tax credit?
The government's Budget 2027 announcement follows last year's review of the credit and the work set out in the Research and Development Tax Credit and Innovation Compass. The aim is to keep Ireland competitive in attracting foreign direct investment in R&D, while also supporting Irish companies that are growing through innovation.
Five changes have been announced:
- Higher subcontracting limits for work outsourced to third-level institutions and to unconnected third parties. The previous limits were the higher of either 15% of your in-house R&D spend, or €100,000; the increased level is 20%, or €200,000.
- A larger first-year payment threshold of €105,000, increased from the €87,500 announced in the last budget.
- A new 5% uplift to your qualifying cost base, for companies that carry out high levels of R&D. This is calculated on qualifying R&D wage costs, but not yet specified.
- Better recognition of the credit for preliminary corporation tax, which helps cash flow where the credit is offset against tax liabilities.
- A simpler science test for regulated clinical trials.
The headline rate hasn't changed. Budget 2026 already took it to 35%, and we don't expect any further increase any time soon. These are announcements until Finance Bill 2027 is enacted, and the start dates and specifics will be set out there.
New subcontracting limits for R&D tax credits
Most of your claim will come from R&D that your own team carries out, but you can also claim on R&D you outsource to a third-level institution or to an unconnected third party. Each of these is currently capped at the higher of 15% of your qualifying in-house R&D expenditure or €100,000, so long as you have spent at least the same amount on R&D in-house. Budget 2027 raises both limits to the higher of 20% or €200,000.
The government says this recognises the importance of collaboration between businesses and third-level institutions, and of giving you access to external resources that support your in-house work. Our guide to claiming R&D tax credits for subcontracted work covers the rules in more detail.
The €200,000 floor and the 20% figure each matter in different situations, so here are two examples:
An Irish software company spends €300,000 on qualifying in-house R&D and pays an unconnected specialist firm €190,000 to research part of a new data-compression method. Under the current rules, the cap is the higher of €45,000 (15% of €300,000) and €100,000, so €100,000 of the specialist's fees can be included. Under the new limit, the cap is the higher of €60,000 and €200,000, so the full €190,000 can be included. At a 35% credit, the extra €90,000 of qualifying spend is worth €31,500.
A manufacturer spends €1,500,000 on qualifying in-house R&D and pays a university €280,000 to research a new composite material. Under the current rules, the cap is the higher of €225,000 (15% of €1,500,000) and €100,000, so €225,000 of the university's invoice can be included. Under the new limit, the cap is the higher of €300,000 and €200,000, so the full €280,000 can be included. That adds €55,000 of qualifying spend and €19,250 of credit.
There's no change to the in-house requirement, so you'll still need qualifying R&D of your own, at least equal in value to the outsourced work, before you can claim for it.
A higher first-year payment threshold (again!)
Your R&D tax credit is normally paid in three annual instalments. In Year 1 you receive the greater of 50% of the credit or the first-year threshold, and the rest follows in Years 2 and 3. Our guide to the three-instalment payment system shows how it works.
Budget 2027 increases the first-year threshold from €87,500 to €105,000. That means the first €105,000 of a claim is payable in full in the first year, rather than over the standard three instalments. For a start-up or loss-making company taking its credit as a cash repayment, getting more of your credit up front can make a real difference to what you can fund next.
A company with a credit of €95,000 currently receives €87,500 in Year 1, with the remaining €7,500 spread across the next two years. With the new threshold, it receives the whole €95,000 in Year 1.
A company with a credit of €200,000 sees its first instalment rise from €87,500 to €105,000, with remainder spread across the next two years.
If 50% of your credit already exceeds the threshold, your first instalment stays the same. A €300,000 credit, for example, still pays €150,000 in Year 1, €90,000 in Year 2 and €60,000 in Year 3, so the change makes the biggest difference to smaller and mid-sized claims.
The new 5% uplift on R&D wage costs
A new provision will allow you to increase your qualifying cost base by 5% of your qualifying R&D wage costs, provided your company has enough R&D expenditure. R&D-active companies have additional supporting costs that fall outside the definition of qualifying R&D expenditure, and this uplift recognises that. It's calculated from your existing R&D wage costs, so it shouldn't mean much extra admin.
A software company has €600,000 of qualifying R&D wage costs. The uplift adds €30,000 to its qualifying cost base, and at 35% that's an extra €10,500 of credit, on top of the credit on the wage costs themselves. This assumes the company meets the expenditure condition.
What counts as a "sufficient level" of expenditure hasn't been defined, so don't assume you'll qualify until the Finance Bill confirms the test.
The uplift rests entirely on your wage costs, which makes the evidence behind them more valuable than before. If your team doesn't track time in detail, our guide to claiming R&D tax credits without timesheets is a good place to start.
A new preliminary tax change
The government has announced a change to improve the recognition of the R&D tax credit for the purposes of preliminary corporation tax. The intended result is a cash-flow benefit to companies that offset the credit against their tax liabilities.
The detail hasn't been published yet, so it isn't possible to say exactly how the change will operate. If you use your credit to reduce a corporation tax liability, this is the measure to watch in the Finance Bill. Until the legislation is in place, you should keep calculating preliminary tax on the current basis.
Regulated clinical trials will satisfy the science test
If a clinical trial is regulated, that fact may be used to satisfy the science test. This recognises R&D work undertaken by Irish companies as part of global trials and reduces the administrative burden of demonstrating it.
This will matter most to pharmaceutical and medical companies that take part in multinational trials, where the Irish company's contribution can be hard to separate from the wider programme. The science test is only one half of a claim, though. You'll still need to meet the accounting test and show that your costs are qualifying R&D expenditure.
The clinical trials measure will be provided for at Committee Stage of the Finance Bill, because the technical work on the legislation is still ongoing.
When does these changes take effect?
Nothing changes in your claim until the legislation is passed, so current rules apply to everything you're preparing today. It's a good moment, though, to review how your subcontracting arrangements compare with your in-house R&D spend, and whether the new limits would bring costs into your claim that are currently excluded. Make sure your agreements and invoices clearly describe the R&D activities each subcontractor carries out, and check that you're keeping the records Revenue expects to see.
It's also worth looking at how you record time for staff working on R&D, because the wage cost uplift depends on it. If you're taking part in regulated clinical trials, keep documentation of your role in the trial from the outset.
Key takeaways
- The rate stays where it is. Budget 2027 improves how the credit works rather than raising the headline percentage.
- Subcontracting gets a boost. Both limits rise, which matters most if you collaborate with universities or rely on specialist contractors.
- Smaller claims are paid sooner. A higher first-year threshold means more of your credit arrives in the first year.
- A wage-based uplift is coming. The condition on sufficient expenditure hasn't been defined yet, so wait for the Finance Bill before building it into any forecasts.
If you'd like help understanding how Budget 2027 affects your claim, get in touch and we'll walk you through it. At Tax Cloud, our tax and technical experts keep on top of legislative changes so you don't have to.
