How successful are R&D Tax Credits?

The Department of Finance recently published its latest report on the effectiveness of R&D Tax Credits, a valuable government incentive that encourages business R&D investment in Ireland.

In a nutshell, the Research & Development Tax Credit 2025 Review examines whether the scheme is still fit for purpose when it comes to supporting innovation and creating skilled jobs to power the Irish economy. Leyton Ireland took part in the consultation, submitting our views on how the scheme could be modernised and made more accessible.

So, how successful are R&D Tax Credits? The report concludes that the scheme is one of the main drivers of investment from foreign-owned companies, helping to bring skilled jobs to Ireland as intended. But it also highlights the ongoing concerns around SME participation.

Key findings

Highlights from the Research & Development Tax Credit 2025 Review include:

Balancing multinational success with local SME growth

The report is stridently positive about the R&D scheme’s success in driving foreign direct investment (FDI), especially in the manufacturing and information and communication sectors. The report shows that in 2023, large enterprises accounted for 79% of all R&D expenditure in Ireland, and foreign-owned companies accounted for 84%.

And it’s no surprise why, as the report points out, Ireland’s innovation incentives continue to be among the most generous and attractive in the OECD.

But the scheme also exists to support local startups and SMEs, at least that’s the hope. Concerns about the dominance of large multinationals led to reforms in 2022, designed to make it easier for smaller and less profitable companies to access the credit.

On this, the recent report presents a mixed story. While it’s natural to expect that larger enterprises would have larger budgets for R&D, the report states that there is still a productivity gap that needs addressing: “while smaller and domestic based enterprises engage in R&D, they may not be conducting the optimal level due to their relative size, profitability and other characteristics that differentiate them to their international peers.”

The report then suggests that R&D Grants are often cited as a potential solution to tackle underinvestment in home-grown R&D.

Why does it matter if it’s mainly multinationals driving innovation in Ireland?

Multinationals driving innovation in Ireland shouldn’t be seen as a bad thing per se (it’s fantastic that so many big global players are investing in Ireland rather than elsewhere), but the report needs to be viewed in the light of the current economic climate. After all, these figures are from 2023, which already feels like a very different world. 

There is a potential risk to Irish economic prosperity if we’re overly reliant on multinationals amid trade tariffs, protectionism, and global uncertainty. Boosting domestic SME innovation and productivity helps make Ireland’s economy more resilient, protecting and creating new high skilled roles.

2022’s R&D policy changes may be having an effect

The good news is that there are some indications that the changes in 2022 have started to have a positive effect. After years of plateauing growth, the number of claimants is up from 1,631 in 2022 to 1,804 in 2023. Crucially, the statistics show that most of the 173 extra claimants were small businesses.

We also saw from the separate Research & Development (“R&D”) Tax Credit Statistics report that growth in SME eligible R&D expenditure was higher than that of large enterprises in 2023, with SME expenditure increasing by 13.51% compared to 9% for large enterprises. While it’s only one year’s worth of data, these are positive steps in the right direction.

Our view: Change to R&D incentives in Ireland is still needed

As the report acknowledges,one of the biggest barriers to claiming is the administrative complexity of the scheme (which is particularly burdensome for SMEs, who tend to have limited internal resources).

While the increase in take-up is welcome, steps need to be taken to modernise R&D incentives in Ireland, especially considering the challenging geopolitical situation that we (and many other countries) find ourselves in. Improving the productivity of our domestic SMEs through innovation incentives needs to be high on the government’s agenda, helping our domestic business community weather the global economic storm that we’re likely to face for the foreseeable future.

We believe that the scheme’s ongoing success depends on removing barriers to outsourcing R&D projects, simplifying access to R&D grant funding, and creating a dedicated R&D Tax Credits division within Revenue to support SME access. There must also be clearer communication from the government, so that more small businesses know that they can take advantage of the available incentives.

Empowering SMEs: Make the most of your innovation

Too many SMEs are missing out on the benefits of R&D Tax Credits, because they don’t realise that their innovations may qualify as R&D for tax purposes.

If your business solves technical problems, tests design alternatives, or develops new processes or tools, you could very well be carrying out qualifying R&D activity, which means you could make a claim.

R&D Tax Credits allow companies to recover up to 30% of qualifying R&D expenditure, rising to 35% for 2026. Eligible costs include project spend such as staff time, overheads, materials, and other expenses directly linked to your R&D activity. In other words, the financial benefit can be significant, providing much-needed breathing room during such tumultuous times for the global economy.

For anyone unsure if their work qualifies for tax relief, we’d be more than happy to have an informal chat about the eligibility of your R&D projects. Get in touch today.

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