In Ireland, a company’s R&D tax credit claim may include amounts paid to subcontractors where relevant conditions are met. Finance Act 2019 introduced new legislation requiring companies that will include the cost of outsourced R&D work in their R&D tax credit claims for 2020 and future years to notify subcontractors either before the subcontractor is paid or on the date the payment is made.
The notification should state that the principal company may make an R&D tax credit claim in relation to the work the subcontractor has carried out on its behalf and that the subcontractor may not make the claim for that work.
This change does not affect R&D tax credit claims in respect of 2019 expenditure. It relates to R&D tax credit claims in respect of expenditure incurred in accounting periods starting after the passing of the Finance Act in December 2019.
This means that a company wishing to include payments to subcontractors in its 2020 R&D tax credit claim needs to make the notification now in order to protect its entitlement to include the cost of the outsourced R&D work in its R&D tax credit claim, even though the credit will not be claimed until after the year end.
It may be advisable for companies claiming the R&D tax credit to insert a clause with this notification in it contracts with subcontractors.
We will be happy to assist companies with queries regarding the new notification requirement for R&D tax credits.