The Clawback of the Research and Development Tax Credit

A tax credit for certain qualifying expenditure incurred by a qualifying company on R&D activities is provided for under section 766, 766A and 766B Taxes Consolidation Act (TCA 1997). The tax credit is given at 25% of allowable expenditure on a claim to relief by the company on the CT1. All claims for deductions, reliefs and credits in relation to CT are processed based on self-assessment.

In the event that a Research & Development Tax Credit claim is subsequently found to be incorrect either by over claim or expenditure that is non-qualifying, the tax credit is clawed back. The Revenue may also request that penalties and interest are paid in relation to this tax credit. When the tax credit is clawed back, there are two separate charges to tax as outlined below.

Schedule D Case IV Assessment applicable for:

1. A clawback of payable credits

Where a clawback arises on a specified amount a Schedule D Case IV assessment should be made. Specified amount is defined in section 766 of the TCA 1997. It includes the payment of the excess remaining of the tax credit for qualifying research and development expenditure in 3 equal instalments to the company and the repayment of the excess tax credit remaining for specified relevant expenditure of a qualifying building which is repaid over 3 instalments. The specified amount includes amounts that a company has surrendered to one or more key employees.

2. Change of use in an R&D Building

If a building or structure is sold or ceases to be used for the purpose of the same trade a clawback will occur and a Schedule D Case IV assessment should be raised.

The clawback of an incorrect claim to the Research & Development Tax Credit is as follows:

• Repayment of tax credit over 3 instalments; the clawback amount is calculated as an amount equal to 4 times the excess credit claimed.
• Amount surrendered to key employees; the clawback is calculated as an amount equal to 8 times the excess credit.
• Change of use of a building; the clawback is calculated as an amount 4 times the aggregate of the credit given.

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