Pearse Doherty (Donegal, Sinn Fein)
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752. To ask the Minister for Finance the cost of making the research and development tax credit payable to small and micro companies within 12 months. [43874/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Finance Act 2022, Finance (No.2) Act 2023 and Finance Act 2024 introduced changes to the R&D tax credit regime which were for the benefit of all claimant companies. However, certain measures introduced, whilst available to all companies, were of particular benefit to companies engaged in relatively smaller R&D projects.

Finance Act 2022 changed the manner in which the R&D tax credit is claimed and paid, to align with new Pillar Two tax rules. The Finance Act measures removed certain caps on the payable credit and the process of first offsetting the credit against corporation tax liabilities, providing instead for a fixed three-year payment schedule. It also provided for the first €25,000 of a claim to be payable in full in year one instead of being spread over three annual payments. This amount was doubled to €50,000 in Finance (No.2) Act 2023 and further increased to €75,000 in Finance Act 2024. These increases provide a cash-flow benefit for smaller R&D projects and are aimed at encouraging more companies to engage with the R&D corporation tax credit regime.

I am advised by Revenue that, based on R&D tax credit claims included on Corporation Tax returns for 2023, the most recent year for which data are available, the estimated cost of making the full amount of the R&D tax credit payable in one instalment for small and micro-companies would have been in the region of €38 million. However, it should be noted that in 2023 the amount of the R&D tax credit that was payable in full in one year was €50,000, therefore this estimate relates to the acceleration of R&D tax credit claims in excess of that amount. In 2024 the amount of the R&D tax credit payable in full in one year was increased to €75,000 which equates to qualifying R&D expenditure of €250,000. Taking this into account it is expected that a significant majority of small and medium sized companies would fall into this category of spend and therefore will already qualify to have their R&D tax credit paid in full in the first year. It is therefore expected that the cost of making the full amount of the R&D tax credit payable for remaining small and micro claimant companies (i.e. with claims for the R&D tax credit above the current threshold of €75,000) would be significantly below €38 million.

Further information on the R&D costs incurred by SMEs (from 2012 to 2023), estimated either based on the number of employees or by reference to Revenue Division that has responsibility for the company’s tax affairs, is included in tables 7 and 8 of the Revenue Research & Development (‘R&D’) Tax Credit Statistics report:

www.revenue.ie/en/corporate/documents/statistics/tax-expenditures/r-and-d-tax-credit-statistics.pdf

It should be noted that the estimated cost of €38 million would be a budgetary cash flow cost in year one, but over the three-year period would not result in an additional cost, as it does not entail any change to the overall amount of the R&D tax credit. It also assumes no behavioural change by companies claiming this R&D tax credit. I am further advised that Revenue cannot provide estimates for later years due to the unknown nature of the future tax base and future economic behaviour.

It should also be noted that any amendment to the R&D regime specific to small and micro companies could be considered a targeted measure for State aid purposes and therefore require State aid approval to introduce.