Simon Harris has delivered his first budget as Minister for Finance.
Budget 2027 set out what he described as an “optimistic” path forward, against a backdrop of volatility in world energy markets and increasing geopolitical uncertainty. In this context, the budget was largely built around measures to build Ireland’s economic resilience and make it easier for businesses to “invest, innovate and grow”.
On this point, the Budget was not just aimed at a local audience. The Minister did everything he could to remind the world of Ireland’s political stability and budget surplus, which many other countries are undoubtedly envious of! This is especially important at a time when countries are competing to attract investment and high-value jobs in emerging technologies (such as AI) because they are seen as vital to driving future economic success.
Against this backdrop, the Budget included several welcome and, in some cases, unexpected measures that will help to strengthen Ireland’s competitiveness as a destination for R&D investment. Examples of positive announcements included higher R&D Tax Credits subcontracting limits, a rise in the first-year payment threshold to €105,000, a new enhancement for qualifying R&D wage costs, a change allowing regulated clinical trials to satisfy the R&D science test, and a five-year extension to the Knowledge Development Box regime.
What did Budget 2027 announce for innovative businesses?
Below, we summarise the key Budget 2027 measures affecting innovative businesses in Ireland.
R&D Tax Credits
The Minister described the R&D Tax Credits scheme as “a cornerstone of our corporation tax policy since its introduction in 2004, providing consistent support for cutting-edge scientific and technological research for over two decades.”
In line with the programme of work set out in the R&D Compass, Budget 2027 announced several new “improvements” to the regime:
- The existing limits on scope for subcontracting to third level institutions and third parties (e.g., agencies & individual subcontractors), have been increased from 15% to 20%, and from €100,000 to €200,000.
- The first-year payment threshold was increased from €87,500 to €105,000.
- A new enhancement in respect of qualifying R&D wage costs was introduced.
- Regulated clinical trials will now satisfy the science test.
- A simplification measure to improve recognition of the R&D Tax Credits for preliminary tax purposes was introduced.
The increase in the first-year payment threshold is good news for SMEs and companies investing in smaller R&D projects, as it will help to provide a very useful cashflow benefit much earlier on in the claims process.
We were also glad to see an expansion around the subcontracting rules. It was one of our pre-budget asks, as the existing limits were particularly restrictive for sectors such as software, which relies heavily on subcontractors and will play an important role in the development of emerging technologies.
And the change for regulated clinical trials also has huge implications. As the government says, it should reduce the administrative burden for companies undertaking clinical research in Ireland and recognise R&D work carried out here as part of global trials.
We look forward to further details in the Finance Bill on the enhancement for qualifying R&D wage costs and the simplification measure for preliminary tax.
Overall, these changes appear to signal a welcome modernisation of the R&D Tax Credits scheme. We hope this is the first step in a wider trajectory of announcements covering some of the other changes we would like to see, including clearer guidance from Revenue on eligibility and greater support for businesses that struggle with the claims process.
Knowledge Development Box
The Knowledge Development Box (KDB) provides Corporation Tax (CT) relief for companies that have created usable qualifying assets from R&D activities, such as computer programmes, patented inventions, or certified patentable IP for small businesses.
The Minister announced that the KDB regime will be extended by another five years. Because of the scheme’s low take-up so far, the extension was an unexpected (but welcome) announcement, providing greater certainty for businesses creating qualifying intellectual property in Ireland. Now that the extension is in place, we hope to see more done to ensure that businesses are aware of the valuable tax relief that’s available.
The Minister also announced a limited option for existing claimant companies to opt out of the regime for all qualifying assets.
Innovation and enterprise support
The government has said it plans a “holistic assessment” of how to improve the various grant schemes, enterprise tax incentives, and business development programmes on offer. As we have repeatedly called for, we hope that one outcome of this assessment is greater alignment between the allowable expenditure across R&D Tax Credits and innovation grant schemes, so that businesses can easily benefit from both forms of support without having to suffer separate administrative burdens.
There were also measures announced that implement some of our asks for Ireland’s Enterprise 2035 strategy, where we called for more support to help home-grown Irish businesses move from start-up to scale-up. It was therefore very encouraging to hear that in coordination with Enterprise Ireland, the Ireland Strategic Investment Fund (ISIF) will invest €1 billion to help keep Irish businesses in Ireland while scaling up and growing internationally. €1 billion is a significant sum of money, and the plan is to invest it within an ambitious three-year programme running up to 2030. We look forward to seeing further details on how the programme will be administered.
This support for scaling businesses also sits alongside the government’s wider commitment to increase spending on critical “physical” infrastructure. This is important because, as we argued in our Enterprise 2035 submission, Ireland’s ability to attract investment and help businesses grow depends not just on access to finance, but also on improving the energy, water, housing and transport infrastructure that businesses and regional communities rely on.
The Minister also announced extensions to the Employment Investment Incentive, Start-Up Capital Incentive, Start-Up Relief for Entrepreneurs and Relief for Investment in Innovative Enterprises (aka Angel Investor Relief).
How Leyton can help
Budget 2027 builds on Ireland’s generous innovation incentives. If your business is investing in research and development, these announcements provide a timely opportunity to review how the available incentives could support your work.
Not sure if you’re eligible, or have a question about any of the measures announced in Budget 2027? We’d be happy to help. Get in touch for an informal chat today.
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