Budget 2026 is only a few days away, coming against the backdrop of US trade tariffs and a struggling global economy.
As announced in the Summer Economic Statement 2025, Budget 2026 will reveal details of a government spending package of €9.4 billion, and be presented to the Dáil on Tuesday, 7 October.
While fundamentally healthy, the Irish economy is currently threatened due to its reliance on large multinationals, especially as protectionism is on the rise. One of the key focuses of the budget is therefore to improve the resilience of the economy, especially the SME backbone across the country.
The Minister for Public Expenditure, Infrastructure, Public Service Reform and Digitalisation, Jack Chambers, said: “In the context of growing international uncertainty, focussed investment in our capital infrastructure is the best way to safeguard our economy, drive growth and opportunity, protect jobs, increase competitiveness and ensure prosperity for our people and communities.”
With the government’s goals of protecting livelihoods and boosting productivity in mind, there must also be a focus on encouraging innovation by making it easier for startups and SMEs to fund R&D, while also maintaining the attractiveness of Ireland as a place for multinationals to invest.
One clear and powerful tool for this is the R&D Tax Credits scheme, which helps to attract and retain high-value research and development jobs within the Irish economy while boosting innovation to drive growth. Budget 2026 presents an opportunity to improve the scheme, and there are several areas where changes to R&D incentives and grant funding can make a real difference, including:
- Modernising the R&D Tax Credits scheme
- Removing barriers to outsourcing R&D projects
- Simplifying access to R&D grant funding
- Introducing a dedicated R&D Tax Credits division within the office of the Revenue Commissioners
In this article, we explore each of these in more detail, explaining why we believe reform of the R&D Tax Credits scheme and grant funding will be beneficial for innovative businesses, and the wider Irish economy as a whole.
Areas for R&D reform for Budget 2026
1. Modernise the R&D Tax Credits scheme
As several countries around the world make significant changes to their own R&D Tax Credit schemes (Singapore, Australia etc.), the Irish R&D Tax Credit scheme needs modernising in several areas in order to keep up. There must be clearer guidance for projects involving mathematics, quantum modelling, and AI large language model development. These subjects all underpin the next wave of technology-based R&D and so the proactive inclusion of these areas is needed. Clarification on allowable overhead costs (e.g. software licences) would also be welcomed.
We would also like to see the scheme widened to include carbon reduction and sustainability-focussed R&D activities, particularly in the area of CleanTech.
Decarbonisation and digitalisation will go hand in hand for the long-term viability of every business in the future. Organisations are making significant investments in these areas, and while an accelerated Capital Allowances Scheme exists for energy efficiency investments, we would welcome the inclusion of government support for wider sustainability focussed activities. As many jurisdictions around the world launch dedicated green or sustainability-focussed tax schemes, Ireland must follow suit if it wishes to remain competitive.
While many of us have been talking about rental costs for a while now, the exclusion of rent as an allowable cost for R&D continues to be an issue for claimants (especially as costs for buildings that are owned can be claimed for). This particularly disadvantages SMEs who often cannot afford to own their own premises.
2. Removing barriers to outsourcing R&D projects
The current restrictions on outsourcing R&D activities (to a 3rd party), especially in the context of software-focussed companies, are quite limiting. In general, software companies undertaking R&D are significantly restricted in terms of two elements:
- access to suitably qualified talent
- the cost of accessing that talent
In addition, due to the rapid nature of innovation in the technology sector, the resources needed to undertake R&D may fluctuate within a relatively short period of time. This means that hiring dedicated R&D functions within the business may not be necessary on a permanent, full-time basis.
As such, outsourcing R&D costs on a project-by-project basis is more cost-effective and lowers the risk of an overinflated workforce. For a business to maximise the limits on this, it would, in effect, need to spend approximately €750,000 to meet the relevant ratios. And, by and large, the only companies incurring this type of R&D expenditure are large multinationals.
For SMEs, this cap means that they are increasingly looking to outsource their R&D spending to lower-cost economies, like Bulgaria or Singapore, where they will take advantage of the local R&D tax credit schemes instead. Therefore, a more focussed approach should be looked at for Irish SMEs, which encourages them to prioritise their spending in Ireland.
3. Simplifying access to R&D grant funding
From working with our clients, we have identified that a relatively low percentage of R&D claims are also in receipt of grant support from state agencies such as Enterprise Ireland or IDA Ireland.
The grant funding ecosystem, both in Ireland and the EU, is extremely well-funded and provides for a wide array of R&D activities. However, many companies find that the system is extremely complex and difficult to navigate.
Although the National Enterprise Hub has recently been launched, more efforts should be made to support small businesses in making first-time grant applications. Generally, there should be a reduction in the administrative burden when applying for grants.
4. Introducing a dedicated R&D Tax Credits division within the office of the Revenue Commissioners
The lack of visibility and transparency regarding claim processing times and progress is generating significant uncertainty within the SME community, where cash flow management is a substantial priority. Additionally, there is no clear mechanism for a business to inquire about the status and progress of their R&D tax credit claim.
While we respect the office of the Revenue Commissioners’ resourcing issues, and the significantly positive legislative changes that have been made in recent times to the scheme, we would ask that a dedicated R&D Tax Credits division be established to improve efficiency by supporting innovative businesses through the claims process.
Infrastructure issues must also be addressed by Budget 2026
As well as improving access to R&D tax incentives, there are also wider infrastructure issues that need attention.
The biggest threat to future growth and attracting R&D investment is a combination of housing shortages (and subsequent high rents), energy grid infrastructure, and extensive planning timelines. These are all having a chilling effect on many sectors that are looking to further invest in Ireland.
From the statements we’ve seen so far from the government, it’s encouraging that additional funding for capital investment is being made available for these areas, with an extra €2 billion being provided for expenditure under the revised National Development Plan (NDP). Specifically, the money is planned to go towards, “strategically important areas such as electricity networks, water, and wastewater infrastructure, housing and transport.”
We welcome this investment and look forward to seeing the details on 7 October.
Find out more about Leyton
At Leyton Ireland, we help businesses leverage a range of financial incentives and tax exemptions to accelerate their growth and drive innovation.
With an emphasis on compliance, we’ve delivered unparalleled service to our clients for over 27 years. Our internal expertise and innovative approach have solidified our position as market leaders, providing peace of mind that you will always receive the maximum benefit, without taking risks.
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