R&D Tax Credit: Key Enhancements and What They Mean for Your Business

Finance Act 2025 introduced significant enhancements to Ireland’s R&D Tax Credit, reinforcing its position as a cornerstone of Ireland’s innovation and foreign direct investment strategy.

Increased Credit Rate

The most notable change is the increase in the R&D Tax Credit rate from 30% to 35%, the second increase in two years. This higher headline rate strengthens Ireland’s competitiveness when compared internationally and provides greater certainty for both multinational and indigenous companies making long‑term R&D investment decisions.

Improved Cash-Refund Mechanism

Finance Act 2025 also improves the R&D Tax Credit cash‑refund mechanism by increasing the first instalment threshold from €75,000 to €87,500. This allows companies with claims below this threshold to receive the full credit upfront in year one, delivering a valuable cash‑flow benefit, particularly for SMEs and early‑stage companies.

Treatment of Employee Time

In addition, where an employee spends 95% or more of their time on qualifying R&D activities, 100% of their emoluments may now be treated as qualifying R&D expenditure. This simplifies claims for businesses with dedicated R&D staff, although robust contemporaneous documentation remains critical.

Laboratory Construction Expenditure

The legislation also clarifies that expenditure on the construction of laboratories used for R&D can qualify for the R&D Tax Credit. However, exclusion of areas deemed to be “office space” may give rise to interpretation issues, particularly where desk‑based technical work forms an integral part of laboratory activity.

Instalment Payment Clarifications

The legislation also makes clear that companies must state whether each R&D Tax Credit instalment should be treated as a tax overpayment, to be offset against another company tax liability, or paid directly by Revenue, and it clarifies when the third instalment is due.

What Businesses Should Do Next

Companies carrying out R&D activities should reassess their R&D Tax Credit position in light of these enhancements, particularly around project eligibility, employee time allocation, and cash‑refund planning, to ensure they are maximising available relief while meeting Revenue expectations.

For further information, please contact us.