If your R&D involves running materials, chemicals, or power through a process to test something new, you're probably already including some of that spend in your R&D tax credit claim. What catches a lot of companies out is what happens next.
Once your R&D starts producing something with genuine commercial value, the rules around what you can claim shift.
This article looks at when materials and power qualify as consumable expenditure, what happens when your R&D produces a saleable product, and why the answer can depend on your uncertainty.
What makes a material or power cost qualify?
Revenue's test for any R&D cost, materials and power included, comes down to a specific phrase in the legislation: the expenditure must be incurred "wholly and exclusively in the carrying on" of the R&D activity.
Applied to consumables, Revenue's guidance gives a direct example: overheads that are wholly and exclusively incurred directly in the carrying on of qualifying R&D, like power consumed in the R&D process, qualify for the credit. This essentially means the cost has to sit inside the R&D activity itself, not alongside it in a supporting role.
In practice, that covers:
- Materials and components consumed or destroyed during testing and experimentation
- Chemicals and reagents used directly in trials
- Power and energy consumed directly in running the R&D process
It's worth being just as clear about what doesn't qualify. Revenue specifically excludes indirect overheads, even where they support a genuinely qualifying project: recruitment fees, insurance, travel, equipment repairs or maintenance, shipping, business entertainment, telephone, bank charges, and interest. These costs might be incurred because of your R&D, but they're not incurred in the carrying on of it.
What happens when your R&D produces something you can sell?
This is where consumables claims usually go wrong, and it has nothing to do with whether the materials were genuinely used in qualifying R&D.
Revenue's guidance addresses what happens when the R&D activity leaves behind something of commercial value: "where it is reasonable to consider that there will be a saleable product, the lower of cost or net realisable value of any materials or other saleable product which remain after the R&D activity, should be deducted from the expenditure claimed."
This essentially means that if you could reasonably expect, at the time you were carrying out the R&D, that some of the output would end up being sold, you can't claim the full material cost. You deduct whichever is lower: what those materials cost you, or what they'd fetch on sale.
Here's what that looks like in practice:
A company runs a process improvement trial using 1,000 items, each costing €5 to put through the process, a total of €100,000. Given the type of process R&D involved, it was reasonable to consider from the outset that the output would be saleable. Three batches of 10 items (30 in total) are retained for further research and can't be sold. The remaining 970 are saleable. The cost of those 970 items, €4,850, is deducted from the claim. Only the €150 spent on the 30 items kept back for research qualifies.
Note that this deduction applies whether or not the company was certain the output would sell. The question is about what was reasonable to expect at the time, not what actually happened afterwards.
What is the exception to this rule?
This is the part of the rule that catches out companies with materials-heavy R&D the most, particularly in pharma, chemicals, and process manufacturing: whether a saleable product deduction applies at all depends on whether genuine scientific uncertainty was still being resolved when the R&D took place.
If your project is still ongoing and the uncertainty is not resolved, it may not be reasonable to assume at the time that a saleable product will result, even if one eventually does. In that case, the deduction doesn't apply, and the full material cost can qualify.
For example:
A biopharma company runs Phase 3 trials on a new compound, having already completed Phase 2 successfully. There's still genuine uncertainty over whether the compound will remain stable and effective once manufactured at scale, so it isn't reasonable to consider, at the time of the trial, that the resulting batches will be approved and sold. Aside from any costs separately identified as non-qualifying, the full cost of the trial materials is included in the claim.
What if the R&D happens on your normal production line?
Where qualifying R&D is carried out as part of an existing manufacturing or production process, rather than as a standalone project, only the additional expenditure incurred wholly and exclusively in the R&D element qualifies. The baseline cost of running the production line doesn't.
In practice, this usually means the incremental waste or unsaleable product created by an experimental modification, and any additional time and materials genuinely attributable to the research element, can be claimed. The ordinary cost of keeping the line running cannot.
You will need to keep robust records to show Revenue how you came to your apportionment, in case they request further information.
Key takeaways
- Materials and power consumed directly in R&D generally qualify, but indirect overheads never do, even on a genuinely qualifying project.
- If it's reasonable to consider your R&D will produce a saleable product, you deduct the lower of cost or net realisable value of the saleable output from your claim.
- Uncertainty changes the outcome. Where you’re not sure if the project will result in a saleable product, material costs can qualify, even if the output turns out to have commercial value.
- R&D carried out on a live production line only attracts credit for the incremental cost above normal production, not the baseline running cost.
- Document your assessment at the time you carry out the R&D, not after the claim is prepared. Revenue will expect to see that reasoning on audit.
Ireland's R&D tax credit is worth 30% of qualifying expenditure, rising to 35% for accounting periods ending on or after 31 December 2026, so getting the consumables calculation right has a real effect on what your claim is worth.
