{"id":1633,"date":"2026-08-04T16:39:33","date_gmt":"2026-08-04T14:39:33","guid":{"rendered":"https:\/\/leyton.com\/ie\/?post_type=article&#038;p=1633"},"modified":"2026-08-28T15:18:48","modified_gmt":"2026-08-28T13:18:48","slug":"what-we-want-to-see-from-budget-2027-for-rd-and-innovation-incentives","status":"publish","type":"article","link":"https:\/\/leyton.com\/ie\/insights\/articles\/what-we-want-to-see-from-budget-2027-for-rd-and-innovation-incentives\/","title":{"rendered":"What we want to see from Budget 2027 for R&#038;D and innovation incentives"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Budget 2027 will be presented to the D\u00e1il on Tuesday, 6 October, against the backdrop of Ireland holding the Presidency of the Council of the European Union, where economic growth and resilience against tariffs, conflicts and other global economic shocks will be high on the agenda.&nbsp;<br><br>We know that there\u2019s a strong appetite among ministers to do more to boost innovation and productivity through research and development incentives, with the Government\u2019s <a href=\"https:\/\/www.gov.ie\/en\/department-of-finance\/publications\/research-and-development-tax-credit-and-innovation-compass\/\">R&amp;D Tax Credit and Innovation Compass<\/a> publication already considering ways to enhance the <a href=\"https:\/\/leyton.com\/ie\/rd-tax-credits\/\">R&amp;D Tax Credits scheme<\/a>. These incentives are a way of increasing Ireland\u2019s competitiveness, making it an attractive place for large global enterprises to invest while also supporting homegrown startups and SMEs, helping them to develop exciting new technologies while creating new jobs and helping to grow and strengthen our economy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Budget 2027 is therefore a great chance for meaningful improvements to be announced. We want to see changes to R&amp;D incentives and grant funding in several areas, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Modernising the R&amp;D Tax Credits scheme<\/li>\n\n\n\n<li>Supporting innovation beyond traditional R&amp;D<\/li>\n\n\n\n<li>Providing clearer guidance for qualifying R&amp;D projects<\/li>\n\n\n\n<li>Doubling the current subcontracting cap<\/li>\n\n\n\n<li>Aligning allowable costs across R&amp;D Tax Credits and grant schemes<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><br>Below, we will explain each of these in more detail.<\/p>\n\n\n\n<h2 id=\"h-areas-for-r-amp-d-reform-for-budget-2027\" class=\"wp-block-heading\"><strong>Areas for R&amp;D reform for Budget 2027<\/strong><\/h2>\n\n\n\n<h3 id=\"h-modernising-the-r-amp-d-tax-credits-scheme\" class=\"wp-block-heading\"><strong>Modernising the R&amp;D Tax Credits scheme<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Last year, we called for the <a href=\"https:\/\/leyton.com\/ie\/insights\/articles\/why-budget-2026-needs-to-deliver-rd-tax-credits-reform-to-help-innovative-businesses-thrive-in-ireland\/\">modernisation of the R&amp;D Tax Credits scheme<\/a>, specifically asking to see the scheme widened to include carbon reduction and sustainability-focused R&amp;D activities, particularly in the area of CleanTech. We also asked for clearer guidance for projects involving mathematics, quantum modelling, and AI large language model (LLM) development.<br><br>Since then, the Government of Ireland\u2019s Compass has said that \u201cthere have been significant scientific and technological developments and changes over the past 20 years and there may therefore be merit in carrying out a review of the fields of science and technology to ensure that they are still appropriate and broad enough to accommodate scientific and technological advances.\u201d<br><br>We welcome this acknowledgement, and repeat our call for the modernisation of the R&amp;D Tax Credits scheme to make it more inclusive of the emerging technologies that are vital to Ireland\u2019s future economic success.<\/p>\n\n\n\n<h3 id=\"h-supporting-innovation-beyond-traditional-r-amp-d\" class=\"wp-block-heading\"><strong>Supporting innovation beyond traditional R&amp;D<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">One other area of interest that emerged from the Compass was the consideration for designing \u201ca new tax-based support for innovation\u201d, separate from the existing R&amp;D Tax Credit.<br><br>While the Compass flagged potential barriers for such an incentive (such as the cost to the exchequer and the difficulty of defining \u2018innovation\u2019) we believe that such an incentive could be hugely beneficial for businesses in Ireland because of the limitations around what is traditionally classed as \u2018R&amp;D\u2019.<br><br>The current R&amp;D Tax Credits scheme is built on the <a href=\"https:\/\/www.oecd.org\/content\/dam\/oecd\/en\/publications\/reports\/2015\/10\/frascati-manual-2015_g1g57dcb\/9789264239012-en.pdf\">Frascati definition of R&amp;D<\/a>, which focuses on planned, systematic work which leads to advances in science and technology. While that definition has been in place since the scheme\u2019s inception and is well understood, there is a school of thought that it is now outdated.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In the context of what more can be done to increase local homegrown SME participation in the scheme, we would encourage the Government to consider and investigate aspects of the <a href=\"https:\/\/ec.europa.eu\/eurostat\/documents\/3859598\/5889925\/OSLO-EN.PDF\">Oslo Manual<\/a> for incorporation into the scheme. The Oslo definition accounts for \u2018knowledge\u2019, which could include many parts of a business\u2019s advancement that are essential for a modern digital economy such as process innovations involving software and equipment, or organisational innovations that improve a business\u2019s performance.<\/p>\n\n\n\n<h3 id=\"h-providing-clearer-guidance-for-qualifying-r-amp-d-projects\" class=\"wp-block-heading\"><strong>Providing clearer guidance for qualifying R&amp;D projects<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">We have also called in the past for clarification on allowable overhead costs (e.g., software and licences). There is currently too much uncertainty around R&amp;D projects involving mathematics, quantum modelling, and AI large language model development \u2013 all of which are drivers of the modern economy.<br><br>The Compass promised a review into \u201cthe definition and interpretation of expenditure on research and development\u201d, and we are particularly keen on seeing clearer guidance for qualifying R&amp;D projects. We feel that this would be one of the strongest ways to help Revenue clearly and proactively communicate the benefits and relevance of R&amp;D Tax Credits to innovative Irish SMEs, which have traditionally been more hesitant to apply for the scheme.<br><br>One area where Revenue particularly falls behind other tax authorities is that it does not provide example R&amp;D project case studies of qualifying activities, as HMRC does in the UK in its guidance. Such examples and case studies would make it much clearer to SMEs and other businesses what counts as R&amp;D and what is allowable expenditure.<\/p>\n\n\n\n<h3 id=\"h-doubling-the-current-subcontracting-cap\" class=\"wp-block-heading\"><strong>Doubling the current subcontracting cap<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The current restrictions on outsourcing R&amp;D activities to a third party are currently very limiting. At the moment, the subcontracting rules sit at 15% of qualifying expenditure or \u20ac100,000, whichever is the greater. Our view is that this limit needs to be doubled because it is causing a massive amount of restriction, in particular within the software sector, which is so important to Ireland\u2019s prosperity but also where subcontractors are used extensively.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The Compass did promise to consider increasing the current cap on subcontractors, and we would welcome progress in this area.<\/p>\n\n\n\n<h3 id=\"h-aligning-allowable-costs-across-r-amp-d-tax-credits-and-grant-schemes\" class=\"wp-block-heading\"><strong>Aligning allowable costs across R&amp;D Tax Credits and grant schemes<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">We have previously encouraged Revenue to reduce the administrative burden for <a href=\"https:\/\/leyton.com\/ie\/grants\/\">grant R&amp;D funding<\/a> in Ireland, as many companies we speak to say that the claims process is too complex and difficult to navigate.<br><br>One straightforward way of doing this would be to align allowable R&amp;D costs across both R&amp;D Tax Credits and Irish innovation grant schemes. Currently, costs allowed under&nbsp;<a href=\"https:\/\/www.enterprise-ireland.com\/en\/\">Enterprise Ireland<\/a>&nbsp;and&nbsp;<a href=\"https:\/\/www.idaireland.com\/\">IDA Ireland<\/a>&nbsp;R&amp;D grants differ from those allowed by Revenue, with Revenue being slightly more generous.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a>This is problematic, because companies can receive both grant funding and R&amp;D Tax Credits, which is a lucrative combination with huge benefits for SMEs. <\/a>If you are an SME spending \u20ac100,000 on an experimental development project and you get a <a href=\"https:\/\/www.enterprise-ireland.com\/en\/supports\/research-development-innovation-fund\">45% grant from Enterprise Ireland<\/a>, your net spend is \u20ac55,000. You can still claim the 35% credit on that \u20ac55,000, worth \u20ac19,250, so the overall support comes to much more than half the original project cost.<br><br>Making the combination of both incentives easier to access would have a real impact on SME innovation. A business claiming under both wants to create the same report that meets both requirements, but instead faces two administrative loads when applying for each scheme.<br><br>We would therefore ask for greater alignment of the allowable expenditure, expanding eligible grant costs to be in line with R&amp;D Tax Credits, within state aid guidelines.<a id=\"_msocom_1\"><\/a><\/p>\n\n\n\n<h2 id=\"h-find-out-more-about-leyton\" class=\"wp-block-heading\"><strong>Find out more about Leyton<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">At Leyton Ireland, we help businesses leverage a range of financial incentives and tax exemptions to accelerate their growth and drive innovation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You can find out more about how we help innovative businesses by reading our case studies:<\/p>\n\n\n<section id=\"ori-list_block\" class=\"ori-list full-w \"><div class=\" ori-list_only\">\n    <div class=\"ori-container\">\n        <div class=\"ori-row\">\n            <div class=\"list-content\">\n                                <ul>\n                    <li><a href=\"https:\/\/leyton.com\/ie\/insights\/case-study\/eliteform-manufacturing\/\">EliteForm Manufacturing<\/a><\/li>                <\/ul>\n            <\/div>\n        <\/div>\n    <\/div>\n<\/div><\/section>\n\n\n\n","protected":false},"excerpt":{"rendered":"<p>Budget 2027 will be presented to the D\u00e1il on Tuesday, 6 October, against the backdrop of Ireland holding the Presidency of the Council of the European Union, where economic growth and resilience against tariffs, conflicts and other global economic shocks will be high on the agenda.&nbsp; We know that there\u2019s a strong appetite among ministers [&hellip;]<\/p>\n","protected":false},"author":46,"featured_media":1635,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"tags":[181,179,113],"expertise":[],"class_list":["post-1633","article","type-article","status-publish","format-standard","has-post-thumbnail","hentry","tag-buget-2027","tag-new-en","tag-rd-en"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v28.1 (Yoast SEO v28.1) - 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