Since its introduction in 2004, the research and development (“R&D”) tax credit has been improved and extended. Since 2009, cash refunds of unused R&D credits can be claimed. Finance Act 2012 has further improvements, including rewarding some staff by transferring R&D credits to them to claim income tax relief. A recent survey suggests fewer than 20% of Irish companies have made claims, so many companies must be missing out on this valuable relief. As defined, R&D is much broader than many realise, and covers far more than white- coated technicians in labs. Consider its potential application to your company, particularly if a cash refund is possible.
Expenditure that qualifies
Certain criteria must be met to be “qualifying activities” for the R&D credit, including the areas of science and technology where work was carried out. In some areas, R&D activity is obvious (e.g. pharmaceuticals) but software development, engineering, food production, health and agriculture are other areas where relief may be available. Companies often underestimate the categories of qualifying R&D expenditure. In addition to direct R&D costs, indirect expenses (support staff wages, rent, and many others) can be included by reasonable apportionment.
If it meets the conditions, a company can claim a corporation tax credit equal to 25% of its “incremental” expenditure on qualifying R&D activities over the “base year” spending level. The R&D credit is in addition to the “normal” 12.5% deduction. The incremental qualifying expenditure may be capital (a new building or machine) or revenue (salaries, materials) in nature, with direct and indirect expenditure qualifying. Grant-aided expenditure does not qualify. The activities need not be carried out in Ireland. Though aimed mainly at in-house R&D activity, sub-contracted work can qualify, subject to monetary limits.
Method of claiming credit
The claim is included in the corporation tax return, Form CT1. While no supporting documentation is needed on making a claim, it should be in place as Revenue often audit R&D claims, particularly where cash refunds of unused R&D credits arise.
Time limit for claims
Claims must be made within one year of the end of the accounting period in which the R&D expenditure was incurred. Any R&D tax credit not claimed by then is lost.
The following is a summary of upcoming pay and file dates:
On-Line pay and file date for 2011 return of income 15 November 2012
Payment of Capital Gains Tax for the disposal of assets made from 01 January 2012 to 30 November 2012 15 December 2012
If you require any assistance in meeting these deadlines, contact Anthony Casey to discuss your requirements.
From 1 June 2012 the following categories of tax payers are obliged to file their returns electronically:
• All VAT registered tax payers • Self assessed individuals claiming certain income tax exemptions (Artists Exemption, Woodlands Exemption etc) • Self assessed individuals claiming certain income retirement reliefs (RAC payments, Relief for PRSA contributions etc) • Self assessed individuals claiming certain income tax reliefs (BES relief, EII relief, Seed Capital relief , Film relief etc)
Where a taxpayer is obliged to file and pay on ROS, the penalty for failing to do so is €1,520 each time a taxpayer fails either to pay or file on-line. Where there is a genuine difficulty with filing and paying on-line, taxpayers may on application to Revenue be excluded from electronic filing.
TAX TIP: If you think you may be in a tax refund in respect of 2011, why not send in your return early and obtain your refund now!!!
Finance Act 2012 included an update on the rules surrounding the repayment of taxes outside a four year period. Previously claims for repayments of taxes outside a four year period, while not refundable by Revenue, would be available for offset against other tax liabilities. However Finance Act 2012 states that where a claim is lodged outside of the relevant time limit, offset against any other tax liabilities of the person is now prohibited. The only exception to this rule is in the event that Revenue applies to assess or recover tax in a period that is four years or more after the end of the year or period involved. In such a case, tax which cannot be repaid because of the application of the four year time limit but which relates to the same accounting period that is being assessed by Revenue retrospectively, will be available for offset against that liability. Taxpayers should ensure that any repayments of taxes due are claimed and received from Revenue within the relevant time limit.
Revenue have written to the Irish Dental Association stating that from 1 January 2012 dental workers who in Revenue’s view are employees must have PAYE operated on their payments. An extract of this letter is reproduced here for your reference.
The Revenue correspondence is reproduced ‘as is’ and reads as follows:
“Employment Status of Dental Associates and Dental Hygienists engaged by Dental Practices
Revenue have considered the circumstances surrounding the engagement of dental associates and dental hygienists in dental practices, having regard to the criteria set out in The Code of Practice for Determining Employment or Self Employment Status of Individuals and relevant case law. It is the Revenue view that generally speaking associates and hygienists engaged by dental practices are engaged under a contract of service (i.e. they are employees) and their remuneration comes within the scope of PAYE and that PAYE should be operated on all payments from 1st January 2012.
It is accepted that there may be exceptional cases where the terms of engagement differ from the norm and in these instances Revenue is prepared to look at these on a case-by-case basis. Revenue will consider each case on its own merits and in cases of doubt a submission, outlining the terms and conditions of the engagement should be submitted by the dentist or the hygienist to their local Revenue District for consideration.”