Call to reform R&D tax credit as start-ups in crisis

Three-year turnaround for full refund is too long for companies to wait, says tax experts

Start-up companies are facing ongoing issues claiming research and development (R&D) tax credits and some could go out of business before they receive full refunds, experts have warned.

The Government has been urged to consider introducing temporary measures to aid small companies who depend on the R&D tax credit to survive. These measures could include issuing a full refund immediately after an application has been approved rather than providing it as three separate annual instalments as is currently the case.

It has also been called upon to implement changes to the R&D tax regime promised in last year’s budget but yet to be enacted.

Revenue announced plans earlier this year to expedite these repayments to free up thousands of euro in cash for businesses struggling during the coronavirus crisis. However, many start-ups have complained it can take up to a year just for applications to be approved.

Lobby group Scale Ireland said urgent steps are needed to better support companies.

"As part of the Covid response, the Government announced accelerated repayment of the credit, but reported delays in this process are creating significant challenges for our most innovative companies across the country," said chief executive Liz McCarthy.

The tax credit cost the exchequer €335 million in 2018, the last year for which figures are available.

Services

Denis Breen, managing director of ProfitPal, an accounting firm that has provided services for start-ups such as Newswhip, Brightflag and Pointy, said many companies rely heavily on the refund, particularly those that are pre-revenue or which have seen turnover slide in 2020.

“In the current climate, it could be a matter of life and death for a company waiting for applications to be accepted and refunds to be issued,” he said.

Mr Breen called for Revenue to agree to a set turnaround time for dealing with applications and to consider paying full R&D tax refunds as soon as they are approved.

“The one thing that would really help start-ups is Revenue paying out immediately. At the moment, even if companies are approved and get the first instalment, they have to wait for the rest. If they are liquidated tomorrow, it is the liquidator who claims that outstanding credit,” he said.

Mark O'Sullivan, tax director and head of R&D technical services at BDO, added that companies are also being stymied by delays in enacting improvements to the R&D tax regime that include increasing the available credit from 25 per cent to 30 per cent, and making it available to companies who have yet to start trading.

Environment

“At a time when supporting such companies is paramount, these enhancements must be enacted,” he said.

Mr O’Sullivan added the scheme could be improved further as potential claimants are deterred by the cost and effort of applying, coupled with the lengthy review process.

The Irish Venture Capital Association backed calls for the acceleration of payments to start-ups.

"In the current economic environment, prompt processing and payment of R&D tax credits is very important to company cashflow. Indeed all payments to enterprises by the State should be prompt to ensure they do not have to resort to expensive short-term debt," said director general Sarah-Jane Larkin.