Optimising Your R&D Tax Credit Claim: Best Practices for Manufacturers

Revenue’s R&D tax credit scheme offers Irish companies the opportunity to claim back up to 30% of eligible costs on innovating. Tax credits can be a lifeline to start-ups and SMEs, especially now the credit is paid out sooner.

In 2022, the manufacturing industry accounted for €750 million in tax credits paid out, more than 60% of the total amount claimed. However, there may be many millions left to be claimed.

At Tax Cloud, we’ve seen an increase in companies leaving money on the table, likely due to a lack of comprehension of the scheme. We’ve outlined some of the key ways to ensure manufacturing companies are making optimised R&D tax credit claims.

The foundation of a strong R&D tax credit claim is knowing what qualifies as R&D.

Qualifying projects are very different in content, but all have some qualities in common. Eligible projects will all have made a scientific or technological advance in the wider field and have tried to overcome challenges to achieve this.

The basic requirements are:

• Overcoming scientific or technological uncertainty
• Seeking to achieve a scientific or technological advance
• Conducting systematic, investigative or experimental activities

These requirements are intentionally vague to cater to projects across many fields. We’ve seen successful R&D tax claims in many manufacturing fields, including:

• Packaging
• Plastics
• Electronics
• Automotive
• Industrial Machinery
• Construction

Whatever your field, if you’re building towards an advance in science or technology, it’s likely you have a claim.

Proper record-keeping is vital for any R&D tax credit claim. Knowing what projects qualify is half the battle; being able to prove that your project qualifies requires a robust record-keeping practice.

This is important in the event of an audit from Revenue so that you can defend your claim. However, it also means that you can keep an eye on your projects as you’re doing them and identify qualifying work early.

Having strong records also helps you when making your claim and saves you scrambling to remember what you did in the year.

The kinds of records you may need are:

• Timesheets for staff
• Competitor analyses
• Results of a literature review or other evidence that the solution was not in the public domain
• Evidence of the systematic investigation, such as:
• Technical specifications
• Experiments and associated results
• Project plans and logs
• Milestone reports
• Staff qualifications and experience
• Internal communication discussing the projects

Using internal systems to keep track of your manufacturing projects can help you make a stronger claim at every stage.

Qualifying expenditure is wholly and exclusively incurred in the carrying on of qualifying R&D activities. Only work that actively seeks to advance science or technology can be included.

Within this understanding, there are several categories which can be claimed, albeit with varying levels of caveats to each:

• Staff costs
• Subcontractors
• Agency staff
• Materials
• Overheads
• Cloud computing
• Royalty payments
• Capital expenditure

Knowing which categories you can claim and how to claim them means you can plan your R&D expenditure with the 30% tax credit in mind.

Knowing what you can claim will help you plan your R&D; similarly, you can plan your teams more intentionally. Allocating your resources more efficiently will help when preparing claims. This may mean identifying roles relevant to R&D and creating roles that reflect that, like R&D Project Leads.

R&D teams often include technical staff (engineers, designers) and support staff (technicians, software developers, process engineers). However, making a claim will also require input from the finance and tax teams.

Training the entire team on identifying eligible R&D and relevant costs will pay dividends later when you make a claim.

At Tax Cloud, we’ve been making R&D tax credit claims for over 20 years. With unparalleled knowledge and experience, we’re happy to answer any questions about preparing your R&D tax credit claim.

We always advise companies to prepare a claim report in advance of making a claim. This ensures that you’ve made a claim correctly and are prepared in advance for any questions from Revenue.

If you have any questions about meeting Revenue’s requirements for a claim, get in touch with our team.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud