Revenue Note for Guidance

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Revenue Note for Guidance

766C Tax credit for research and development expenditure for smaller companies


The section provides for a research and development tax credit for pre-trading for micro or small companies which can be offset against payroll taxes or vat liabilities in the same period.



tax liability” is defined as-

  • (1) the amount of payroll taxes collected other than pay related social insurance for each income tax month and
  • the VAT liability for each taxable period,
    in which the expenditure on research and development was incurred.

Application of the section

(2) This section applies to a relevant micro or small sized company which may make a claim where they exist to carry on a trade but have not yet started to trade.

(3) This pre-trading expenditure on R&D is allowable to calculate the R&D tax credit in the same method as section 766(2). This tax credit is not allowed for the purposes of calculating the key employee surrender amount or a repayable tax credit amount.

(4) The tax credit calculated can be offset against corporation tax of the company for that period, or it may be offset against the payroll tax liabilities (excluding PRSI) and VAT liabilities in the same accounting period. Where an offset against tax liabilities results in an overpayment, this amount may be refunded to the company.

(5) Where emoluments to which the payroll liabilities relate remain unpaid 3 months after the relevant accounting period than these shall not be allowed.

(6) A claim must be submitted within 12 months of the end of the accounting period.

(7) A company must reduce the pre-trading expenditure calculated in line with section 766(1)(b)(vi) by the amount utilised to shelter corporation tax, payroll taxes and VAT under this section. The formula to calculate same is (A-B), where A is equal to the total expenditure on qualifying research and development activities before commencing to trade and B is the amount of tax sheltered under subsection (4) divided by .30 to obtain the amount of qualifying expenditure utilised to shelter the tax liabilities.

Relevant Date: Finance Act 2021