R & D credits

The three-year turnaround for full R&D refund is too long for companies to wait in times when cashflows is important to sustain businesses. Recently numerous issues were encountered when claiming research and development tax credits for most start-up companies and some could go out of business before even receiving full refunds.

In order for the R&D tax credit to survive, the Government should consider introducing temporary measures to assist small companies who depend on this credit. Some of the measures should include a full refund immediately after an application has been approved rather than providing it as three separate annual instalments as it is customary.

In the last year budget there were a number of changes proposed to the R&D regime to streamline the process of credit recovery. This is more important today when cash flow is a proeminent issue for most business affected by COVID-19 restrictions. Revenue Commissioners announced plans earlier this year to expedite R&D credit repayment to free up thousands of euro in cash for businesses struggling during the COVID-19 crisis. The feedback from many start-ups is that it can take up to a year just for applications for R&D relief to be approved. The lobby support group Scale Ireland stated that urgent steps are required to better support companies.

Liz McCarthy the chief executive of Scale Ireland stated recently in an interview that “As part of the Covid response, the Government announced accelerated repayment of the credit, but reported delays in this process are creating significant challenges for our most innovative companies across the country”.

In 2018 the tax credit cost to the exchequer was €335 million as this is the last figure available.

In the present cash strapped economy damaged by COVID-19 start-ups will benefit from instant credit repayment for R&D investments. Companies are stymied by delays in enacting improvements to the R&D tax regime that include increasing the available credit from 25% to 30%, and making it available to companies who have yet to start trading.

Most of the potential claimants for R&D credits are deterred by the cost and resources employed in the application process, coupled with the lengthy review process.

In the current economic environment, prompt processing and payment of R&D tax credits is vitally important for small and medium business to increase company cashflow and secure survival. Payments to enterprises by the State should be prompt to ensure that businesses do not have to resort to expensive short-term debt.