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Research and Development Tax Relief – latest updates from Revenue

Revenue published the long–awaited updates to their Research and Development (R&D) guidelines covering the treatment of rental expenditure.  The updates also include information on the treatment of subsidies received under the Temporary Wage Subsidy Scheme (TWSS) and Employment Wage Subsidy Scheme (EWSS).

Treatment of rent

R&D guidelines which issued on 1 July 2020, stated that ‘Rent is expenditure on a building or structure and is excluded from being expenditure on research and development by section 766(1)(a) TCA 1997.’ Previously, in our experience Revenue would have accepted the inclusion of rent when included in the same manner as other overheads, i.e. where a just and reasonable apportionment has been used. Since publication of the guidance July last, the Revenue’s position on rent has been a continuous discussion between tax advisors and Revenue, it has been engrained in most, if not all, discussions with clients involved in research and development.  Clarity was sought from Revenue on their position on rent and also on the application of this position to historic and new claims for R&D tax relief.  

Latest position

In these latest updates, Revenue’s stated view is that in “many cases expenditure incurred on renting a space or facility, which is used by a company to carry on an R&D activity, may be expenditure that is incurred “for the purposes of”, or “in connection with”, the R&D activity but will not constitute expenditure incurred wholly and exclusively in the carrying on of the R&D activity”.   According to the Revenue update, the eligibility of rental expenditure for relief will depend on the “extent to which it is incurred wholly and exclusively in the carrying on of the R&D activities”.

What does it mean?

In certain scenarios, rental expenditure may be included as part of an R&D tax relief claim. In cases where a building is rented, which is ‘”integral to the carrying on” of R&D activities, rent may be treated as an allowable expense, such as renting a specialist laboratory required purely for carrying out the R&D activity. On the other hand, if a company rents a warehouse or office space where R&D activities happen, the rent will not be treated as eligible expenditure.

While Revenue maintain their position on the treatment of rent and this is disappointing, we understand from communications we have had with Revenue that this position will only apply for accounting periods commencing from 1 July 2020.  We expect that Revenue will not examine R&D claims retrospectively for the inclusion of rent. 

Treatment of TWSS and EWSS

All subsidy amounts received by companies under the TWSS and EWSS are considered State support and therefore such amounts will reduce the qualifying eligible expenditure.  Therefore, businesses should identify TWSS and EWSS subsidy amounts received for staff working on R&D tax relief projects and reduce their qualifying R&D tax relief expenditure accordingly.

Early payment of cash instalments due in 2021

Revenue also provide separate guidance on their website on the early payment of cash instalments due in 2021. Repayable R&D tax credits are not typically available until at least nine months after the end of the company’s accounting period. However, given the exceptional circumstances due to Covid-19 Revenue will expedite the payment of any instalment of excess R&D tax credit that is due to be paid in 2021 i.e. the 1st instalment of 2020, 2nd instalment of 2019 and 3rd instalment of 2018.

How to claim

To avail of this early payment, a claim must be made to Revenue, and at the time of the claim, the corporation tax return for the accounting period ending in 2020 and for accounting periods ending up to March 2021, must be filed with Revenue.  Claims will be subject to Revenue checks.

How can we help?

At Grant Thornton, we prioritise the specific requirements of each client, ensuring their R&D tax relief claim is fully maximised and substantiated in line with both R&D legislation and the latest Revenue guidelines. Our multidisciplinary team have extensive experience navigating Revenue audits and periodically meet with Revenue and industry leaders in order to stay up to date on the latest changes.

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