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Published: 06 March 2019

Latest Version of R&D Tax Credit Guidelines now available 

The latest version of the R&D Tax Credit Guidelines (“the guidelines”) have now been published by the Revenue Commissioners (“Revenue”) today, Wednesday 6^th March 2019. The updated guidelines, now incorporated directly within the Tax and Duty Manual (Part 29-02-03), can be accessed here.

Although not legislation, the guidelines provide useful insights into Revenue’s present thinking on key issues pertaining to the R&D Tax Credit. 

Appendix 4 of the document contains a list of all the updates that have been made. We recommend that you take the time to carefully review all the changes to assess the impact, if any, on your claims and your claim process.

To assist with your review, we highlight below what we see as some of the more significant changes: 

1. Supporting Documentation

The importance of retaining contemporaneous documentation to support that the Science Test and the Accounting Test have been complied with has always been highlighted within the guidelines. However, in the latest version, guidance on this point has been significantly expanded and a “suggested file layout for R&D Tax Credit claims” added as an Appendix 3. As stated in the notes to the Appendix:

“This suggested file layout is based on Revenue’s experience reviewing R&D tax credit claims. It is a basic guide to the contemporaneous documentation that Revenue would expect to see: documentation that should be retained when completing activities in respect of which it is intended to make a claim under S.766 and S.766A TCA 1997 and Part 9 Chapter 5 TCA 1997. There is no requirement to keep the documentation in this format. The format is illustrative and is provided as guidance for those who wish it. Not all questions will be applicable to all industries, all companies or all projects. As each R&D project is by definition unique, further supplementary/clarifying information may be requested.”

It is important to note that this file does not have to be submitted to Revenue when making the R&D Tax Credit claim. However, we recommend that all companies familiarise themselves with the contents of Appendix 3 as it is likely to effectively become a checklist used by Revenue when auditing claims.

Some points to note in relation to this new suggested file layout:

• “Timesheets” are explicitly referenced for the first time in the guidelines (See Question 18).
• Maintaining evidence of the benchmarking exercise carried out at the outset of a project to establish that a solution to the scientific/technological uncertainty did not exist is key to preparing/supporting a claim. In the April 2015 version of the guidelines, a “comprehensive literature review” was provided by Revenue as an example of what they might expect to see in this regard. The latest guidelines also include this reference to a literature review. However, further examples are now also provided, as follows:

“Extensive search on the internet resulted in no known solution, it is imperative to print and retain the results of the internet search as these results for that period cannot be recreated at a later date”;

“Researched competitors in the field”; and

“Retain details of journal searches”

• While many questions included in the suggested file layout will be very familiar to claimant companies (e.g. start/end dates of R&D activities, the field of Science/Technology involved), others may be less so.For example, question 6(b) introduces, for the first time in the context of the R&D Tax Credit, the concept of Technology Readiness Levels (“TRL”), stating:

“Identifying which step on the TRL scale the R&D process is operating, may be beneficial, when identifying if it is eligible as qualifying R&D expenditure under S.766 TCA 1997:

• Idea
• Basic Research
• Technology Formulation
• Applied Research
• Small Scale Prototype
• Large Scale Prototype
• Prototype System
• Demonstration System
• First of a Kind Commercial System
• Full commercial application”

Since first being introduced by NASA in the 1980s as a means of measuring how far a technology was from being space ready, the intervening years has seen the adoption of the TRL scale (or variants thereof) by many sectors. More recently, the TRL scale has been used by the European Union in implementing its innovation policy.

However, in our experience, the formal use of a standardised TRL scale by R&D performing companies is not ubiquitous. Also, there is little precedent available regarding the application of the TRL scale to R&D Tax Credit claims. As stated in the Frascati Manual 2015:

“Different TRL models have been developed to help assess the maturity of the technological elements of such programmes, but remain largely untested in other domains”; and

“Because of the multiplicity of TRL classification systems and their generic description, it is not possible to provide a concrete and generally applicable mapping of TRLs – or more specifically the work conducted in order to bring the programme to a higher readiness level – to the types of R&D (basic research, applied research and experimental development”).

We would have liked to have seen more detailed guidance on the application of the TRL scale to R&D Tax Credit claims.

2. Materials used for R&D that may subsequently be sold (Section 4.7)

The guidance in Section 4.7 relating to materials used for R&D that may subsequently be sold has also been expanded upon and new examples provided.

We highlight in bold below the new wording added to the section:

"Materials used in qualifying research and development activities may be of further commercial value after their research use has concluded. In those cases, it must be determined if those materials were utilised wholly and exclusively in the carrying on by the company of qualifying research and development activities.

Where it is reasonable to consider that there will be a saleable product, then the lower of cost, or net realisable value of any materials or other saleable product which remain after the R&D activity should be deducted from the expenditure claimed.”

Examples No. 14, No. 15. and No. 16 are new and seek to provide the reader with practical examples as to the application of the guidance contained in the section.

Given the significant sums that can be involved and the potential impact on the R&D Tax Credit, it is crucial that the cost of materials is treated correctly in R&D Tax Credit claims. The fact that Revenue have expanded guidance and provided new examples on this issue suggests that they may have some concerns regarding certain current practices in this area.

3. Innovation

In the “New Materials / products / systems” section of the guidelines (see Section 3.6), Revenue has always highlighted that new materials, products and systems do not qualify for the R&D Tax Credit purely on the basis that they are new and/or that “science or technology has been used in its creation”.

In the guidelines published today, Revenue has expanded on this point to confirm that “in many cases these projects will be innovative rather than qualifying R&D”. In the footnote to the relevant page, readers are directed to a definition of “innovation” that has recently being added to S488 of the Taxes Acts.

Of course, many innovative projects will include R&D (as defined for tax credit purposes). However, arguing the case for project eligibility entirely based on a material, product or system being new or innovative is not recommended. It is important to be able to show that all criteria set out in the legislation have been fully complied with. Given the updated guidance in this section and the fact that “innovation” is now explicitly referenced, it is likely that this will continue to be an area of interest for Revenue in audits and other interventions going forward.

4. Subcontracting R&D Activity

Section 6 of the guidelines has been updated and now states that:

“It is important to note that the outsourced activity must constitute qualifying R&D activity of the company which appointed the sub-contractor, and not necessarily R&D of the subcontractor”

This contrasts with the wording used in the previous version of the guidelines which stated:

“It is important to note that the outsourced activity must constitute qualifying R&D activity in its own right”.

This section of the guidelines has also been updated to confirm that where outsourced activity is undertaken by someone who could not claim the R&D Tax Credit (examples given are an individual or a non-resident third party that does not have a branch in the State), the requirement to issue written notification does not apply.

5. Employee Secondments

Section 4.4. is a new section dealing with employee secondments. It states that if an individual is seconded to a company undertaking R&D activities and the costs of that person’s employment are borne by the company undertaking the R&D activities, they will be treated as direct employee costs, provided the following conditions are met:

1) The individual undertakes their duties in Ireland, and

2) The individual must contribute specialist knowledge, to a specific R&D project being undertaken by this in-house team.

6. Penalty Application

Section 8.7. is another new section that deals with the application of penalties in situations where a R&D intervention results in a settlement. It is now stated that "penalties will apply in line with legislation and the code of practice, publication may also apply. Where the penalty chargeable is on a ‘specified amount’ for the purposes of section 1077E(11) and section 1077E(12) the amount of credit will be deemed to be a reference to an amount of tax."

If you have any queries or comments in relation to the new guidelines please do not hesitate to get in touch on (01) 4100993 or e-mail me at This email address is being protected from spambots. You need JavaScript enabled to view it.