Budget 2026: R&D

The R&D tax credit rate will increase to 35%. This follows last year’s increase from 25% to 30%, continuing the Government’s incremental approach to bolstering the regime.

The Minster also announced the following changes to further bolster the regime:

• An increase in the first-year payment threshold from €75,000 to €87,500, to further support smaller R&D projects.
• An administrative simplification measure to allow 100% of an R&D employee’s emoluments as qualifying costs where at least 95% of their time is spent on qualifying R&D activities.

All Irish resident claimant companies or Irish Branch operations conducting qualifying R&D will benefit. 

We expect the changes will take effect for accounting periods commencing on or after 1 January 2026. 

The following is a summary of key features of the R&D tax credit regime:

• Science test: to qualify, a company must carry out activities that aim to achieve scientific or technological advancement through systematic investigation or experimental development.
• Qualifying areas of science: the credit applies to work conducted in a field of science or technology, which broadly covers the natural sciences, engineering & technology, medical sciences and agricultural science.
• Qualifying expenditure includes salaries and wages of R&D staff, materials and consumables used in the research process, directly attributable overheads, and subcontracted R&D.
• Outsourcing remains a contentious issue, with only limited relief available. Under current rules, subcontracted R&D is limited to the greater of €100,000 or 15% of the company’s internal qualifying expenditure. This cap is often prohibitive, particularly for SMEs and scaling businesses, given the collaborative nature of modern R&D and the challenges of sourcing specialist talent domestically.
• Cash refund: the credit is payable in cash, allowing companies to offset it against corporation tax or claim a cash repayment over a three-year period. The refunds are paid in three instalments over a 33-month period. The first instalment is the greater of €75,000 (or the amount of the R&D corporation tax credit claimed, if lower) or 50% of the amount of the R&D corporation tax credit claimed. Budget 2026 increases the first-year minimum payment threshold from €75,000 to €87,500.
• Claim deadline: claims must be submitted within 12 months of the end of the accounting period in which the R&D occurred.
• First-time claimants must notify Revenue at least 90 days before submitting their claim.

The Department of Finance’s 2025 public consultation on the R&D tax credit surfaced several widely supported areas for improvement which have not been dealt with in Budget 2026. The Minster’s Budget speech did announce that an R&D Compass will be published in the coming weeks to set out the future direction of travel for developments in R&D and innovation supports.

We expect this report may address many of the common and practical measures called for in the consultation process that can have a meaningful impact in supporting innovation, particularly for SMEs.

At RSM, we call in particular for the following further enhancements to the regime:

1. Increase the level of relief that can be claimed for outsourced R&D. With Ireland operating near full employment, attracting specialist talent domestically can be challenging, especially for companies engaged in cutting-edge R&D. Greater flexibility in subcontracting is essential to ensure these businesses can access the expertise they need to innovate and grow.

2. Introduce an enhanced credit for SME businesses of 50% to turbo charge our domestic entrepreneurs, coupled with enhancements to the Key Employee Engagement Programme to enhance how key employees can be remunerated 

3. Simplify the claims process and accelerate refund instalment timelines for SMEs. This is a cost-effective revenue neutral measure to boost the cash flow cycle for SMEs who operate within difficult working capital parameters when funding innovation.