There have been many enhancements to Ireland’s taxation offering over the last number of years but it is important for companies to remember the age-old reliable reliefs that are still available. Here we give a short overview of the research and development credit rules as they currently stand.
Gone are the days of having to compute a company’s R&D credit by reference to a base year. Qualifying research and development expenditure qualifies for a 25% tax credit. This is in addition to the corporation tax deduction of 12.5% that the expenditure also attracts.
The credit, once calculated, can shelter any corporation tax arising in the year in which the expenditure is incurred. Any unutilised credit also be claimed against the prior year corporation tax liability.
If the company still has any remaining credits which have not been used, a portion of these can be refunded to the company by way of a cash refund. The level of cash refund available is dependent on the company’s prior year corporation tax liabilities and Paye liabilities.
Companies should note that R&D work which is contracted out to a university or to an unconnected subcontractor can also qualify for the relief subject to certain restrictions. Likewise capital expenditure incurred on a building or structure used for qualifying R&D activities may qualify for relief where the activities are carried on in the building for a period of over 4 years and the R&D activity represents at least 35% of all activities carried on in the building.
It is important to note that claims for R&D must be made within 12 months from the end of the year in which the expenditure is incurred. Any expenditure financed by way of a grant received by the company should not be included as part of the claim.
Companies should continue to review the nature of their operations to see if R&D activity is being carried on. This should be completed on an annual basis as the time limits to submit claims are quite tight.
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As first-time buyers struggle to get on the property ladder all potential first-time buyers should note that the Help to Buy Scheme introduced in 2016 is due to expire on the 31st of December 2019.
The scheme was set up to help first time buyers receive a rebate of income tax which could be used as part of a deposit on the purchase of a new home.
In order to qualify for the scheme, the individual must be a first time buyer and is required to either enter into a contract with a qualifying contractor to acquire a qualifying residence or draw down the first tranche of a loan used to fund the building of a qualifying residence by the 31st of December 2019.
A qualifying residence is a new residence which will be occupied as the purchaser’s sole or main residence. The price of the residence cannot exceed €500,000. The purchaser must also take out a mortgage of at least 70% of the purchase price of the property.
Where the conditions are satisfied the purchaser will be entitled to a rebate of income tax equal to the lower of:
If the purchaser receives approval in respect of the scheme the tax rebate will be paid to the builder.
Beware though. Revenue are entitled to clawback the rebate where the property is not the purchaser’s main residence for a period of 5 years.
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The legal structure for your business e.g. sole trader, single company, holding company or cross border group and the detail of how the structure is implemented and operated are key ingredients in achieving a tax efficient sale. This can be the difference between qualifying for a tax-exempt disposal or paying capital gains tax at 33%.
There are reliefs which reward entrepreneurs and business owners on sale of the business. These reliefs may eliminate tax on a sale or retirement or may provide for a significant reduction in the tax at exit.
The sale by a company of a qualifying trading subsidiary or company owned by a trading group may qualify for complete exemption from capital gains tax.
The sale of a qualifying business or shares in a family company may qualify for complete exemption from capital gains tax for disposals up to €750k per shareholder. In the case of a disposal to a child the exemption is uncapped up to age 66 (a €3M cap applies thereafter).
The sale of shares in a qualifying trading company or holding company may qualify for entrepreneur relief at the reduced 10% rate of capital gains tax for gains up to €1M.
There are qualifying conditions and tests that need to be met for the above reliefs to apply. These conditions may apply at a point in time or may need to be met throughout qualifying periods.
The time frame for meeting the conditions can be as short as 12 months in the case of S626B CGT relief, three years in the case of the reduced 10% rate of CGT for entrepreneur relief or as long as 10 years in the case of qualifying for exemption from CGT in the case of retirement relief.
It is important to consider which of these reliefs or which combination of these reliefs are appropriate to your exit within your strategic tax plan (by the way you need a strategic tax plan but that is another story).
Apart from the changes in tax legislation flowing from the annual Finance Acts which may make changes to these reliefs it is noteworthy that published Revenue practice in this area has been updated a number of times during 2017 and 2018. You should keep your tax structure and exit plans under review on an ongoing basis and if it has been some time since it was examined it is advisable consider if it is still fit for purpose.
We are happy to help. Please post your comment below or call John Comerford, Tax Partner at Cooney Carey, on 01 677 9000. Alternatively, send him an email: email@example.com